Larsen & Toubro: Healthy Order Book

Larsen & Toubro which is the largest engineering company in India announced its June 2012 quarter results. The results were better than the street expectations as the order inflow witnessed a good growth taking the order book to higher levels. After witnessing few dull results seasons, L&T has managed to put in a better picture for June 2012 quarter. Here the company witnessed a good traction in terms of order flow which stood at Rs 19600 crore a staggering 21 per cent increase as compared to June 2011 quarter. With this sort of good order flow for the June quarter the order book now stands at Rs 153100 crore. This is around 12 per cent increase as compared to the June 2011 quarter. The order book of Rs 153100 crore provides a clear revenue visibility for the next eight quarters. On the financial front, on standalone basis, the topline for June 2012 quarter stood at Rs 11955 crore and bottomline stood at Rs 863.65 crore as against Rs 9482.11 crore and Rs 746.15 crore respectively for June 2011 quarter.

Company like L&T is always analyzed on the basis of order book and Order Inflow. If we consider a sector wise breakup, the total order inflow is as follows.

To dissect it further, the domestic order book consists of 89 per cent of domestic orders, 9 per cent of Middle-East and 2 per cent other areas.  The management has state that going ahead they are expecting international orders to drive the growth. Further in terms of Public and private, it is the private which is driving the order book. However we feel some momentum can be expected from the Public Sector as Government is expected to take some action on the policy and Infra front. 

On the order-flow side, the recent agreement to deliver warships, with Mazgaon Dock also provides good order inflow visibility for three years. However management is yet to put any figures to the same. Clarity Will emerge in the coming quarters.

On the margins front EBITDA margins for June 2012 quarter stood at 9.10 per cent as compared to 12.10 per cent in June 2011 quarter and around 11.80 per cent for FY12 as a whole. The basic and primary factor for the EBITDA margins drop is forex provision MTM losses. On the margins front, we feel the softening of commodity prices may bring some cheer for the company.  Further the management stated that, the project cycle is such that, they earn higher margins towards the end of projects. So this will also help the company putting in better margins.

As regards some other info, the company currently has a Debt of Rs 11300 crore. Around 20 per cent is international and 80 per cent is domestic. As on June 2012 it has a Cash balance of Rs 6000 Crore. On the capex front, it has planned Rs 1500 crore capex for Fy13. In Q1FY13 it has spent Rs 200 crore.

As regards the order book target for Fy13, the management had provided a guidance of growth of 15-20 per cent. We feel it is in the right direction to achieve the same.