Larsen & Toubro saw new orders increase 14 per cent in the three months to December, the third straight quarter of such growth after a bad spell in FY-11. Segments driving order book growth have remained unchanged, with infrastructure, water and civil engineering, pointing to a strengthening revival.
The engineering conglomerate got a leg up from a steadier exchange rate too, which helped operating profits grow 12 per cent despite other cost heads appreciating stiffly.
Holding on to margins
L&T has been following a strategy of adding to its workforce for the past four quarters or so. This, together with wage inflation for key staff, has pushed employee expenses up 22 per cent in the December quarter compared with the year-ago period.
The company has, of late, increased subcontracting work, with these costs going up 37 per cent for the recent quarter, accounting for 27 per cent of sales against 22 per cent in the December 2011 quarter. The September 2012 quarter had seen a similar jump in sub-contracting costs. While sub-contracting can aid in speedy, widespread execution, it does not compensate for higher wage or input costs.
But with lower mark-to-market provisioning for forex, other costs dipped 35 per cent, compensating the other cost increases. Operating margins, thus, held steady at 12.6 per cent for the quarter. By virtue of its size, L&T manages lower interest rates than smaller peers, and thus interest costs don’t hold much sway. Net profit margins too remained steady around 7 per cent.
The infrastructure segment accounted for over half the new orders in the nine months to December 2012, in urban infrastructure, water, civil engineering and on earlier bids being opened now. The power segment was still subdued with orders lacking in the critical boiler-turbine-generators, which began revenue contribution for L&T two years ago. But the company managed to secure some power projects in other segments such as hydel power. Even so, the order picture in power and capital goods is still dismal.
International orderS
International orders surged accounting for 22 per cent of the quarter’s order inflows.
L&T’s other divisions continue their lacklustre performance, though exports and higher price realisations turned the fortunes of the ailing electrical and electronics division. Margins here improved by three percentage points to 11 per cent.