Shares of Larsen & Toubro plunged on the bourses on Wednesday in reaction to its April-June quarterly numbers. The infrastructure and engineering conglomerate had reported weaker-than-expected profit growth in the June quarter after closure of markets on Monday.

Hits May low The stock on the NSE closed at ₹1,526.1, down 7.1 per cent against the previous day’s close. Intraday L&T tumbled to a low of ₹1,512, a level it has not seen since May 27.

L&T posted an 111 per cent rise in net profit at ₹967 crore for the quarter ended June 30 against ₹459 crore a year earlier, thanks to divestment gains from L&T Finance Holdings and Dhamra Port. Net sales rose 10 per cent to ₹18,975 crore (₹17,241 crore).

According to analysts, the main reason for the slide was the hydrocarbon business, which caters to pipelines for oil and gas companies in India and abroad. The company reported a sharp slide in revenues and turned loss-making at the pre-tax levels over the year ago. L&T reported a pre-tax loss of ₹891 crore in hydrocarbons due to cost overruns in five-six international projects due to wage increase.

Nomura, which maintained a ‘buy’ rating on L&T, said it posted weak first quarter results, especially when its performance of the hydrocarbon business was clubbed with standalone numbers.

“While L&T had already guided for a weak year for hydrocarbons in FY15, the extent of the losses was a negative surprise for us and management, as well, which lowered its margin guidance by another 50 bps for the same reason,” it added.

Caught off guard According to Ramesh Chordia, an independent analyst and stock dealer in Chennai, the stock also corrected ahead of F&O expiry.

The sudden fall caught many traders, who went long and rolled over their positions to August series in the F&O segment, off guard. “They were forced to cover their long positions which further aggravated the slide,” he added. Nomura, however, said: “We think L&T is among India’s best plays on infrastructure and the corporate capex cycle. With the economy bottoming out and the potential re-investment in infrastructure, we believe L&T has a multi-year growth opportunity ahead.”

But Citigroup and Deutsche Bank downgraded L&T to ‘neutral’ and ‘hold’ respectively, citing rich valuations.

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