Slowdown-hit L&T tempers business outlook

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Engineering major likely to end FY14 with 14% revenue growth

Larsen & Toubro (L&T) on Wednesday cut its guidance for full-year order flow by 25 per cent and said it had only a “fighting chance” to meet the revenue guidance for the year.

The nation’s biggest engineering group whose profitability is seen as barometer of the nation’s economic health is stressed as sluggish economic climate at home and abroad and domestic political uncertainty slowed down order flow and shrank margins in few major segments.

It reported 12 per cent year-on-year sales growth in the December quarter at Rs 14,382 crore, which excluded the numbers from its most-profitable hydrocarbon business that the company demerged into a wholly-owned subsidiary during the quarter.

Net profit grew at 22 per cent to Rs 1,241 crore, which included a one-time income from the sale of a one per cent stake in its subsidiary L&T Finance Holdings, dividends from other subsidiaries and Rs 447 crore interest income, which was down 20 per cent from the year-ago quarter.

The firm received orders worth around Rs 20,000 crore during the quarter and needs Rs 30,000 crore worth of orders in the last quarter to attain the full-year guidance of 20 per cent growth.

“It is likely we will miss the target (of order intake) by 25 per cent,” chief financial officer R Shankar Raman said, citing the current political environment, lack of policy initiatives, the forthcoming general elections and the overall financial conditions of its clients.

The firm received orders worth around Rs 20,000 crore during the quarter and needs Rs 30,000 crore worth of orders in the last quarter to attain the full-year guidance of 20 per cent growth.

“It is likely we will miss the target by 25 per cent,” chief financial officer R Shankar Raman said, citing the current political environment, lack of policy initiatives, the forthcoming general elections and the overall financial conditions of its clients.

The engineering major is likely to end the year with 15 per cent growth in orders and around 14-17 per cent revenue growth against its guidance for 15 per cent.

Shankar Raman said there was a good chance of meeting the operating margins target of 15 per cent for the full year.

Around 8-9 per cent of the company’s total order book of Rs 1,76,000 crore are non-moving orders, meaning works that have not progressed. They are mostly from the power, roads and metals and mining sectors. “We will wait for a while before removing them from the order book or writing them off,” Shankar Raman said.

The company’s December quarter turnover was driven by infrastructure project execution and orders from international markets, which constituted 40 per cent of its order book. The infrastructure sector alone brought in Rs 18,390 crore.

The power segment has been a poor performer, as multiple unresolved issues resulted in a near halt in order flow. The company secured orders worth just Rs 200 crore, a drop of 14 per cent from the year-ago quarter. Order flow from materials and mining sector shrank 30 per cent to Rs 14,084 crore. Sanjeev Zarbade, vice-president for private client group research at Kotak Securities, said while the revenue growth and order intake were in line on a net-net basis, the Ebitda margin and PAT (profit after tax) numbers were higher than estimates. He said the numbers were not comparable to earlier quarter numbers due to the demerger.

Shankar Raman said the company was in the process of selling some of its assets in L&T IDPL, its subsidiary in infrastructure project development. He said there was no hurry to unlock value in the hydrocarbon business, he said.

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