Stocks

Why the L&T stock is rallying over the past two weeks

Keerthi Sanagasetti | Updated on September 01, 2019 Published on August 27, 2019

Bagging orders worth ₹ 13,500-crore across various divisions recently have been the major trigger.

BL Research Bureau

The stock of infrastructure major Larsen & Toubro (L&T) has been buzzing of late, gaining nearly 5 per cent over the past two weeks. A steady flow of orders has cheered the market. Over the last two months, the company has bagged eight orders totalling about ₹ 13,500 crore across various divisions. In the past week alone, it has bagged two sizeable orders through its power and hydrocarbon businesses.

According to reports , the power division of L&T bagged a significant order from NTPC to set up Flue Gas Desulphurisation (FGD) system at Vindhyachal Super Thermal Power Station, in Madhya Pradesh. The division had bagged similar orders in July 2019 for setting up FGD systems at three power plants of Damodar Valley Corporation (DVC) in West Bengal. This is thanks to the move of Environment Ministry, which mandated the setting up of FGD systems in existing and upcoming thermal power plants to curtail SO2 emissions.

Read also: L&T bags ‘significant’ order from NTPC

This apart, the hydrocarbon engineering business too secured a large order from Saudi Aramco for the Engineering Procurement Construction and Installation (EPCI) of 28 offshore fields of the company. Earlier in July, Saudi Aramco had awarded the company with another Mega EPCI project in its Marjan field.

In its earnings call for the quarter ending June 2019, L&T’s management kept their order intake growth guidance at a modest 10-12 per cent year on year, which may translate to an order inflow of ₹ 31,570- 32,000 crore in the September quarter of FY20. Given the orders awarded to various divisions (subsidiaries & JVs) of the company in the last two months, the company has achieved at least 40 per cent of the targeted order inflow for the quarter ending September 30, 2019.

Orders inflow from various segments

Tapping on the current water crisis, the company’s water & effluent treatment business (which the company operates through a JV with Tecton Engineering and Construction LLC, UAE), has bagged an order from the Gujarat Industrial Development Corporation for setting up a 100 MLD water desalination plant. It has also secured an order from a major defence PSU for the construction of a strategic project for the Indian Air Force in July.

Though the company do not specify the exact value of the contract, it the orders awarded as significant/ large/ major/ mega, according to the order value involved. Orders worth ₹ 1,000 to 2,500 crore are classified as significant, while those above ₹ 2,500 crore but less than ₹ 5,000 crore are termed as large orders. Mega orders are those involving more than ₹ 7,000 crore and the ones ranging from ₹ 5,000-7,000 crore are categorized as major orders.

Considering the lower end of order size, the eight orders awarded in July and August 2019 — totalling ₹ 13,500 crore — comes to about 42 per cent of the targeted inflow for the September 2019 quarter.

In the quarter ending June 2019, the company reported a consolidated order inflow of ₹ 38,700 crore, recording a growth of 11.2 per cent year on year, taking the consolidated order backlog of the company to ₹ 2.9 lakh crore. The huge outstanding order book mostly comprises of complicated long-duration orders, giving the company revenue visibility for the next 3 to 4 years.

The order inflows declined by 11 and 7 per cent respectively in the first two-quarters of FY18 on account of drop in orders being awarded in the infrastructure, heavy engineering and hydrocarbon businesses, largely reflecting the lull in the domestic economy.

The company thus shifted its focus towards international orders. The growth in domestic order inflows revived in the first half of FY19, though the growth numbers also appeared robust (to 32 and 46 per cent in the first two quarters) on account of a low base. The company’s consolidated order inflows grew by 13.9 per cent and 11. 2 per cent respectively in 4QFY19 and 1QFY20. International orders now constitute 22 per cent of the company’s order backlog.

Published on August 27, 2019
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