L&T posts all-round show
Net rises 23% to ~22 bn in Q2, ahead of Bloomberg estimate of ~16.5 bn
Engineering conglomerate Larsen & Toubro (L&T) reported a 23 per cent year-on-year rise in profit after tax for the September quarter, helped by a reversal of a ~3-billion provisioning for debt.
The consolidated net profit of ~22 billion beat the Bloomberg consensus estimate of ~16.5 billion. Even after excluding this exceptional item, the profit was well ahead of estimates.
Consolidated revenue from operations was up 21 per cent over a year at ~321 billion and also beat analysts’ estimates of ~292 billion. Revenue growth was primarily led by the infrastructure, hydrocarbons, realty and services businesses.
Infrastructure, the largest (45 per cent of revenue in the first half of 2018-19), drove the show with 22 per cent revenue growth. A higher order book and efficient execution of projects led to 38 per cent revenue growth in hydrocarbons (11 per cent contribution to revenue). The heavy engineering segment continued a strong trajectory, led by improved execution and orders from refineries and nuclear plants (up 52 per cent).
The margins in these individual segments saw some variation but mainly due to the different execution stages and job mixes. Consolidated earnings before interest, taxation, depreciation and amortisation (Ebitda) at ~38 billion, up 27 per cent year-on-year, was ahead of analysts’ estimate of ~33.5 billion. The effort at cost optimisation and efficiencies showed results—the proportion of operating expenses to revenue saw a decline of 100 basis points during the quarter (200 bps in the first half of FY19).
The exceptional item, said the management, was related to a write-back of provisioning made for debt exposure to an account which was resolved at the National Company Law Tribunal (NCLT). The company did not disclose details.
There were new orders worth ~419 billion in the quarter, a 46 per cent jump from ~287 billion in new orders for the same period a year before. At the start of this financial year, the management said it expected 10-12 per cent yearon-year growth in order inflow, and 12-15 per cent in revenue.
As of September, the total order book was ~2.81 trillion, of which 22 per cent was from international orders. The share of new international orders in the quarter was ~83 billion, compared to ~104 billion in the same period a year before.
R Shankar Raman, chief financial officer, said the earlier estimate for the financial year was unchanged. The current environment, he said, continued to face funding, liquidity and government distraction constraints.
“At the beginning of the year, we had anticipated much of the large projects would get orders out in the first nine months of the year and true to that assessment, we have seen much of it ordered out. There is still a pipeline which we will have to wait and watch. There are some businesses which will exhaust order potential by January-February, while some will go right up to the (election) code of conduct date,” he said.
In the June quarter, L&T had said it expected this financial year to be front-ended in terms of ordering activity, due to the coming elections. The management said investment by the private sector remained cautious. “One will wait for capacity utilisation before creating new capacity. The form in which private capex will come in has changed,” said Shankar Raman, noting automobiles and metals & mining as sectors where he expected private investment to pick up.
On execution, he said: “There has been a general push towards executing orders, more of an accumulation of past pending clearances.” He was unsure if this trend would continue.
Analysts are confident of L&T’s earnings growth moving forward. Public sector spending, prior to the election season) is to continue driving the performance, they say. Execution will remain healthy for this reason. One area they will watch is L&T’s working capital. For the first half of FY19, net working capital reduced to 19.6 per cent of revenue, from 20.7 per cent last year. The target for FY19 is 18 per cent, said analysts at Motilal Oswal Securities.