Lower order inflows and profit margin pressure were conspicuous in Larsen & Toubro's fourth quarter and FY-12 results.

For the first time in at least five years, L&T ended an accounting year with lower order inflows than the previous year. Order inflows for FY-12 dipped 12 per cent to Rs 70,600 crore.

Even as the company struggled over the year to improve order inflows on a high base, a 32 per cent decline in new orders in the engineering and construction segment in the final quarter (compared with a year ago) was the primary reason for the fall.

But L&T was proactive in combating the slowdown in order flow in local market, by focussing more on the export market. Unlike pervious years when new overseas orders made up for 10-12 per cent of total projects bagged, this year export orders accounted for 18 per cent of fresh orders. Overseas orders in the hydrocarbon and transmission and distribution space provided traction.

Margin pressures

Profit margin pressures are also beginning to tell on L&T's financials. Higher input costs, higher staff costs and market-to-market provision all hit profit margins. At the operating level, besides marginal increase in input costs, staff costs rose, both for the March quarter and the full year. Staff costs as a proportion of sales inched up to 7 per cent for the latest ended year, up from 6.4 per cent a year ago.

Interestingly, L&T has been setting up new offices in overseas locations such as Brazil and Perth and has been hiring local professionals to head these places. This too could have added to staff costs. Operating profit margins for the full year slipped by 1 percentage point to 12.8 per cent. The dip was more visible in the March quarter, suggesting that margin pressure may just have begun.

Above industry performance

That said, L&T did enjoy advantages compared with the sector as a whole.

One, L&T's numbers suggest that its diversification and presence across countries has helped it mitigate the fall in new orders. More focussed engineering plays like BHEL, were in fact, hit harder, with order inflows falling by over 60 per cent during the year.

Two, L&T managed to grow its sales, net profits and order book in double digits simply because it ensured on-time execution. This, it managed by reducing the proportion of government orders and focussing more on private orders with limited scope for delays. But most other infrastructure players, who depend on the government to clear the project for execution, have not only seen profit margin pressures, but weakening sales growth or even dip in sales.

Keeping its revenue ticking at all cost, has thus enabled L&T to retain ground in yet another turbulent year for the infrastructure sector.