The Hindu Business Line : Better mix, overseas orders bolster L&T earnings

Buoyed by increasing contribution from overseas orders, Larsen & Toubro witnessed a 52 per cent growth in revenue and 40 per cent growth in net profits.

A larger proportion of high-margin orders and improved volumes led to an operating profit margin expansion of 170 basis points to 11.8 per cent. Interestingly, while the first three quarters of 2006-07 saw more subdued growth in topline with the fourth quarter making up for the same, the current fiscal witnessed buoyant growth for L&T in each of the three quarters.

Change in the nature of orders and execution pattern has led to more even distribution of revenues over quarterly periods.

This has also led to the company revising its 2007-08 revenue growth guidance to over 35 per cent from 30 per cent spelt out during its half yearly results.

The order book position of the company stood at close to Rs 50,000 crore. Orders from the West Asian region account for 50-60 per cent of the company’s export order book.

That international orders have been playing an increasingly important role is evident from the 17 per cent contribution of export sales to total revenues for this period. While infrastructure and hydrocarbon have been the key drivers of total revenue, transmission and distribution and construction projects especially from West Asia have driven the export segment.

While engineering and construction, followed by industrial products and electrical and electronic segments witnessed robust growth, we expect the shipbuilding and power equipment activities to provide further traction to earnings once they take off. Even as the locations for shipyards have been identified, the power equipment unit planned in Hazira is expected to take off in another 18-20 months.

If the company is able to start commercial production on these segments in time, it may be able to rapidly capitalise on the huge demand for ships and super-critical boilers. These two lines of business may be the key triggers to be watched on future earnings.

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