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Vidya Bala

Larsen & Toubro witnessed unusually strong order inflows for the quarter ended September 2008, in contrast to the June quarter, when order growth was muted.

Revenue and earnings growth for the quarter also appeared on track to achieving the annual growth guidance given out by the company.

While Larsen & Toubro has not been completely immune to concerns such as commodity price increases and interest costs over the quarter, its strong track record and execution capabilities have ensured steady business growth despite the challenging economic conditions.

For the quarter ended September 2008, L&T’s standalone revenue grew 40 per cent to Rs 7,682 crore over the previous year. Net profits increased by 32 per cent. Operating profit margins took a mild dip of 20 basis points to 10.4 per cent. The company has stated that it has booked expenses on new initiatives such as railways, power and shipbuilding in the current quarter.

As the revenues from these segments are yet to flow in, the expenses have resulted in lower OPMs for the company.

Interest costs (although remaining at less than 1 per cent of sales) witnessed a steep increase as a result of higher borrowing and hedging measures. However, as the company has swapped forex loans into rupee denomination, the liabilities are likely to be insulated from any forex fluctuations in the coming quarters.

The company’s engineering and construction division witnessed 45 per cent growth in revenues and managed to maintain margins. This division accounts for 80 per cent of the company’s revenues. Going forward, this segment may see further acceleration in growth once revenues from new businesses such as power or shipbuilding start kicking in.

Continuing with the trend of the previous quarter, L&T electrical and electronics segment saw tepid growth and decline in operating profits. This slowdown was, however, made up by the machinery and industrial products segment, the operating profits of which grew by a healthy 57 per cent. Among the business segments, it appears that the electrical division has been most affected by the macro risks (lower off take and higher input costs).

L&T’s order inflows grew 74 per cent on a Y-o-Y basis with a massive Rs 12,500 crore of projects bagged in the latest quarter.

In the June quarter, similar growth stood at 28 per cent. The current order inflows, belies fears of the company being affected by any slowdown in capex spending by industries.

Infrastructure orders, specifically construction related projects, continued to dominate a good 31 per cent of the current order book of Rs 63,000 crore. While order flows from the hydro carbon segment remained sedate for the quarter, the company expects a pickup in this segment once orders from ONGC, which typically gain momentum in the third and fourth quarter, start coming in. The current order book provides revenue visibility for the next 32 months.

L&T has not disclosed the financials of its subsidiaries. The management, however, stated that while its Infotech subsidiary’s revenue grew 27 per cent in the half year, profits of its financial services was depressed as a result of a challenging lending and borrowing scenario.

More Stories on : Stocks | Financial Performance | Larsen & Toubro Ltd

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