Engineering conglomerate
Larsen & Toubro (L&T) witnessed a significant improvement in its overall profitability in the December quarter with a 53% jump in its consolidated net profit at Rs 14.9 billion. New orders for the company also saw a welcome respite after a lull seen in the first two quarters of the current financial year.
While the company remains hopeful to continue with the momentum, the management added key decisions taken in the run-up to the election year of 2019 will be crucial.
The net profit rose 53% over Rs 9.7 billion reported in the same period a year back at a consolidated level. In the quarter ending December 31, 2017, revenue for operations rose 10% to Rs 287.5 billion on a like to like basis against Rs 261.1 billion reported in the corresponding quarter last year. Earnings before interest, taxation, depreciation and ammortisation or Ebitda were at Rs 31.4 billion, 25% higher from Rs 25.1 billion reported in the same quarter a year back.
“It has been a very satisfactory quarter, there has been a welcome relief seen on the order inflow side with a growth of 38%. We have been able to convert orders to revenue, seeing a 10% growth in revenue," said Shankar Raman, whole time director and chief financial officer for L&T. Segments like infrastructure, hydrocarbon and heavy electrical contributed to the company’s revenue growth.
The company met street expectations. In a Bloomberg poll, 17 analysts estimated a consolidated net profit of Rs 14.05 billion. In November, L&T revised its order inflow guidance from 12 to 14% growth in the current fiscal to year to flattish owing to a weak order inflow seen in the first two quarters.
However, the company saw a rebound in orders in the December quarter leading to a 38% growth in its order inflow seen at Rs 481.3 billion. With this, the company's total outstanding order book now stands at Rs 2.7 trillion. A larger chunk of these orders are from the domestic market, with L&T expecting to end the financial year with 75% of its order book coming from the domestic market alone.
Despite the significant improvement in its order inflow, the company maintained its revised guidance of flat growth in order inflow and the 12% growth in revenue for the current financial year. S N Subrahmanyan, chief executive officer and managing director for the company, pointed out, “It depends on three factors- one the budget which direction it is going to take, there could be a tilt to social sector and capex could be lower or same as the last year. The other is if oil moves up, for us the Middle East will be good. The third factor is it (2019) being the election year, the decision making could get slowed down. Since the private capital has slowed down, for us a lot will depend on government spending with the central elections and four state elections.”
In the quarter under review, the companies also provisioned for receivables worth Rs 2 billion, which the company said, were claims pending with companies going through the proceedings of National Company Law tribunal (NCLT) and other liquidation processes.
The engineering conglomerate also raised concerns over the modalities of the proposed toll operate transfer (TOT) model for road projects. The management said the TOT model in the current form is one-sided, favouring the Government with no provisions for termination, interest rate risks, non competing rights and assurance of state support as TOT is a Central government initiative.
Commenting on the company’s plans to list its road assets under the infrastructure investment trusts (InvIT) model in the current financial year, Shankar Raman added, ”There are two months more left for the year end, we are in the process and we should hopefully conclude it.”
