Comments
Backed by strong progress in project execution, Larsen & Toubro (L&T) reported consolidated revenue of ₹34,773 crore for the September 2021 quarter, a 12 per cent increase from year ago. This, along with improved operating leverage and reduced finance costs, aided the company’s profitability, helping it deliver results largely in line with market expectations.
L&T grew its operating profit 25 per cent (y-o-y) to ₹3,266 crore in the latest September quarter. While the reported net profit declined 67 per cent (y-o-y) to ₹1,819 crore in the latest quarter, net profit from continuing operations rose 56 per cent to ₹1,722 crore.
Continuing operations exclude L&T’s electrical and automation business which was sold to Schneider Electric in August 2020.
Strong infrastructure
Infrastructure, which includes construction of buildings and factories, transportation projects, and heavy civil infrastructure, is L&T’s largest business segment. It accounted for 40 per cent of the company’s September 2021 quarter revenue. Net revenue from the segment rose 7.4 per cent (y-o-y) to ₹13,923 crore and the EBITDA jumped almost 40 per cent (y-o-y) to ₹1,152 crore in the September 2021 quarter. This is reflected in the improved EBITDA margins too, which rose from 6.4 per cent a year ago to 8.3 per cent in the recent quarter. Improved recovery of overhead costs thanks to full resumption of construction activity and better job mix (larger proportion of higher-margin projects) helped.
The current infrastructure-related order book of ₹2.4 lakh crore translates into a book-to-bill ratio of almost 4 times (based on FY21 revenue) and provides ample revenue visibility.
High-growth IT and Tech services
The company’s second largest revenue contributor, the highly profitable IT and Tech services segment, maintained its EBITDA margins at 23.3 per cent, the same as last year. The segment comprises L&T Infotech, L&T Technology Services, and Mindtree. It continued to reap the benefit of a surge in demand for technology-related offerings in the post-Covid period. A more favourable onsite/offshore job mix, that is, higher offshoring than before, helped on the cost front. Revenue and EBITDA from this segment grew approximately 28 per cent (y-o-y) to ₹7,876 crore and ₹1,832 crore, respectively in the latest quarter.
At the group level, L&T had an aggregate orderbook of ₹3.3 lakh crore as of September 2021, which is 11 per cent higher than that a year ago. This translates into a healthy book-to-bill ratio of 2.4 times based on the FY21 revenue. While tendering activity was up 19 per cent in the September 2021 quarter, project awarding remained slack (down 22 per cent). A recovery in the latter should further bolster L&T’s robust order book. At the macro level, the government’s heightened focus on infrastructure development along with the ongoing economic recovery will serve as tailwinds.
The L&T stock is down just a tad since the results announcement on October 27. We had recommended a buy on the stock in August 2021 ( https://tinyurl.com/d37f6j8h ). The stock is up 8 per cent since then. At ₹1,767, the stock is trading at a one-year forward P/E multiple of 19.7 times, above its 3-year average P/E of 16.3 times (based on Bloomberg consensus estimates). Given the business positives and macroeconomic tailwinds, existing investors can continue holding the stock.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.