L&T June quarter profit up 46%, falls short of estimates
Will continue to focus on reducing working capital, optimising costs
Larsen and Toubro Ltd (L&T) is pinning hopes on Prime Minister Narendra Modi to increase government spending on developmental projects ahead of the next general elections in 2019, for a turnaround in the company’s fortunes.
The country’s biggest infrastructure, engineering and construction company, on Friday, said it had won orders worth only ₹26,352 crore in the quarter ended June, 11% lower than the same quarter last year.
Its management, however, said the company was on track to meet its order book growth guidance of 12-14% for the full year and the drop in the June quarter was because of a lumpy order in the hydrocarbon segment in the year-ago period.
The government had to invest in the social sector in the first three years of its term, but as we get closer to 2019, it will spend big on developmental projects, SN Subrahmanyan, who took charge as the company’s CEO earlier this month, said.
Investment by the private sector, however, continues to remain lacklustre, he added, citing examples of sectors like power and real estate that are grappling with issues ranging from overcapacity and falling rates to a major slowdown in fresh job creation in the information technology (IT) sector.
“Overall, though, the atmosphere is slightly more positive than what it was,” he said, highlighting a 26% growth in order inflows in the key infrastructure segment.
For the quarter, the company, often regarded as a corporate proxy for the broader economy, reported a consolidated net profit of ₹893 crore, which was 46% higher than what it had reported a in the first quarter of financial year 2016-17. Gross revenue, on the other hand, was higher by 10% to ₹23,990 crore
A Bloomberg poll of nine analysts had estimated L&T’s consolidated net profit to rise to ₹928.40 crore and 10 analysts had estimated sales to rise to ₹23,850.10 crore.
L&T’s earnings before interest, taxes, depreciation and amortisation (EBITDA) margin was under pressure during the quarter due to 110 bps contraction in margins in the infrastructure segment.
However, the company’s CFO R Shankar Raman said the company was not worried about margins because of the large order book that were bid at better prices. On the goods and services tax (GST), he said, its electrical and automations segment saw a bump in revenue during the quarter, possibly on the back of the implementation of the GST and that the new tax regime is neutral to positive for the company.
He also said that global markets continued to witness a lowgrowth trajectory and lower investment outlay in a natural consequence of fiscal pressures faced by regulatory authorities in different countries. Sustained lower oil prices presage a period of lower infrastructure spending in West Asia and this has reduced the business prospects in that region.
Its focus continues to be on selective order intake, working capital reduction, cost optimisation via strengthening execution and operational efficiency and productivity enhancement through digitisation and other initiatives. L&T is optimistic of its growth prospects in the medium term as the economic outlook improves, he added.