L&T Recurring Profit Up By 14%, Order Book Tumbles

Capital goods major, Larsen & Toubro, has reported better than street estimate earnings for the March quarter of the last fiscal (Q4FY12). The company reported 21 per cent growth in revenues to Rs 18,460 crore and 14 per cent rise in net profit to Rs 1,920 crore. The recurring profit after tax is up by 25 per cent. The EBITDA margins however took a beating due to the rise in the input costs. The company’s justification is that there has been competition pressure and the business environment continues to remain very challenging.

The order inflow during the quarter was down by 30 per cent to Rs 21,159 crore. The total order book however is up by 11 per cent to Rs 1,45,723 crore. According to the management, the target has been set for growth of between 15-20 per cent in the next fiscal with the growth in order inflow also to remain in the same range. The EBITDA margins, which once were seen in the range of 13.5 per cent, have come down to nearly 12 per cent and will remain the same over the next 12-24 months owing to the weak economic scenario across the globe. During the quarter the company recorded 23.4 per cent rise in revenues from its E&C segment. The income from the E&E segment also increased by 15 per cent but declined in the MIP segment.

Table 1: L&T Q4 Result Highlights

Table 2: Margins As Per Segments

Its current order book provides revenue stability for the next 2.7 years. The order book decline has mainly occurred due to the lost jobs and deferred clearances. Going ahead, the growth of about 15-20 per cent in the order inflow will primarily be due to the government’s increased focus on the infrastructure, power, oil and gas and fertiliser sectors.

Table 3: L&T’s Order Book And Order Inflow Status

The capex for FY12 was Rs 1,077 crore and the company has guided that it will remain the same in the current fiscal as well. It will now expand its capacity in the E&C segment and the benefits of the same will accrue in the future. The company’s growing focus will be on the Middle East region and mainly in the hydrocarbons segment. The company has also declared that it will focus on countries like Iraq, Kuwait, Saudi Arabia, etc. In the E&E segment the orders have been strong in the transmission and distribution segment. The power generation segment may come under pressure due to uncertainty about the coal blocks. With the decline in the IIP numbers one may expect a further decline in the MIP revenues.

The company has stated that small to medium-sized companies are bidding aggressively for the projects but that it is hopeful about building on its abilities to complete the projects on time. Besides, the company has an established presence in the Middle East and hence orders from that part of the world will keep coming. As the outlook looks moderate with revenue visibility of 2.7 years, we believe that L&T is still a long-term ‘buy’ candidate.