There is a great probability that Larsen and Toubro could disappoint on order inflows when it announces its financial performance for the March 2016 quarter on Wednesday. However the company’s share price is unlikely to correct much as expectations are already low and the same is already down 24 per cent in the last one year.

 

India’s largest infrastructure company had guided for a growth of 10 per cent in order intake in the beginning of FY16. Later on it tempered down the same to 5 per cent and further down to a flattish movement.

 

In nine months ended December 2015, the company’s order inflows decreased by 13 per cent year on year. In March 2016, the company’s announced order intake stood close to Rs 20,000 crore, down 28 per cent year on year. Thus, analysts expect the company’s FY16 order intake to decline 7-10 per cent and weak guidance for FY17.

Sell rating

Amit Shah, analyst at Motilal Oswal expects the stock to correct if order inflow decline is more than 10 per cent in FY16. Misal Singh, analyst at Religare Institutional Research has a sell rating on the stock and believes the stock could de-rate further if the order inflow growth guidance for Fy17 is less than 10 per cent.

 

“We expect LT to miss its revised order inflow growth guidance of 0-5% YoY for FY16, and also guide to lower order inflow growth for FY17,” he said.

 

An analyst who did not wish to be quoted said that the company missed few boiler-turbine-generator orders with very close margins and there were delays in awarding of certain domestic orders. Overseas orders, which form close to 30 per cent of total order inflow or book, also have been witnessing muted activity due to soft crude price scenario.

Order book 

Besides weak order inflows, execution of orders on hand and margin pressure is also a concern. While overall activity across infrastructure space is going slow, benefits of low commodity prices have not kicked in yet, analysts said. Thus, the highest ever order book of over Rs 2,50,000 crore as on December 31 is not much of help.

 

In March 2016 quarter, L&T’s revenues are expected to grow 12 per cent year on year to Rs 31,387 crore while net profit is expected to decline 8 per cent to Rs 1,814 crore following 71 basis point pressure on operating margin and substantial jump in interest cost on the back of a lower base. Hydrocarbon and heavy engineering segments are likely to report losses.

 

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