Private sector capital expenditure not returning in a hurry: L&T; Q4 net down 6%

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June 6, 2020 7:07 AM

The company’s Ebitda (earnings before interest, tax, depreciation and amortisation) stood at `5,120.7crore, a decline of 3% y-o-y against analysts’ expectation of Rs 5,325.58 crore.

L&T posted a mixed set of numbers.

Private sector capital expenditure is not coming back in a hurry, as companies still need to dust their balance sheets and get revenue and cash flows back in line before they start investing, Larsen & Toubro’s (L&T) top brass said on Friday. Like other large corporates like Wipro and Infosys, L&T too refrained from giving a guidance for the current financial year, which is a break from tradition.

L&T CEO and managing director SN Subrahmanyan said that the company, to a large extent, is going to be dependent on state government, public sector units and a few central government jobs but these will be backed by a lot of multilateral funding. “About 35% of the jobs will be multilateral funded from the likes of JICA, World Bank, Asian Development Bank as such. I don’t see private sector revival at the moment”. He added that the company sees some activity on the airports side, and some jobs coming in on the residential and commercial real estate. A large extent will be funded by multilateral funding and government funding.

He added that in the Middle East too the jobs would be mostly government-led and that was the way the company was looking at for the next one to two years. In a break from the tradition, L&T also kept from giving a guidance for FY21, stating that as the economic situation is dynamic and uncertainty over how the Covid-19 pandemic plays out, “any guidance will not be relevant” at this stage and will be given once the situation becomes better later in the year.
The company has started operations in all its factories and 60-70% labour is back said Subrahmanyan said. However, of its 950-odd sites, about 90% have started but hardly with 40% of labour. “We have 120,000-odd labourers right now at the sites, we need to get it up by another 100,000,” he said.

L&T posted a mixed set of numbers. While it beat analyst expectations on the net profit and revenue fronts, it missed the estimates on operating income. However, in comparison to the previous year, the numbers remained weak. The company reported a decline of 6% in net profit on a year-on-year basis for the quarter ended March 31, 2020 to Rs 3,197 crore against Bloomberg’s consensus estimates of about `3062 crore. Revenues from operations during the quarter were marginally up by 2% y-o-y to `44,245 crore. Analysts had expected the revenue to come in at nearly Rs 43,896 crore

The company’s Ebitda (earnings before interest, tax, depreciation and amortisation) stood at `5,120.7crore, a decline of 3% y-o-y against analysts’ expectation of Rs 5,325.58 crore. Consequently, Ebitda margins came in at 11.6%, a decline of 60 basis points y-o-y. Order inflows during the quarter increased 5% to `57,785 crore, while the order book stood at Rs 3.03 lakh crore as on March 31, 2020.

As for working capital, it deteriorated to 23% to sales versus 18% to sales in FY19. R Shankar Raman, chief financial officer, said that to some extent deterioration was on account of the company allowing the vendor sub-system to get paid regardless of the payment out of the customer collections. “So deterioration is not directly linked to customers not paying us, it is also because of the fact that we paid our vendors. Secondly, the terms of trade with all our contracts are increasingly becoming interest linked when it comes to customer advances. Earlier days we used to have customer advances which are interest free, I guess the liquidity squeeze all around are making people count their pennies more closely”.

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