Mumbai: India’s Larsen & Toubro said on Thursday new orders in the three months to June fell more than a fifth and demand was likely to remain slow for at least another quarter, even as quarterly profit tripled on a one-off gain.
Shares in the country’s largest engineering and construction company, which the market values at $16.5 billion, fell as much as 4.2% in a choppy Mumbai market after the result.
L&T rode a construction boom in the past few years as India revamps its airports, roads and adds industrial capacity. It is betting the government’s focus on infrastructure investment will boost order flow in the second half of the financial year.
“We don’t see any concerns in demand, but the key is the timing,” executive vice president R Shankar Raman told reporters. “We are waiting for project momentum to pick up, and expect this to be stepped up in the third and fourth quarters.”
The conglomerate said it had an order backlog of Rs71,650 crore ($14.7 billion) at the end of June, which should help the company meet targeted revenue growth of 15-20% for the full year ending in March.
While the global financial crisis slowed the economy and pressured firms to scale back expansion plans, the government’s recent focus on boosting rural infrastructure and speeding up road construction has raised revival prospects for the sector.
“This year, we expect the government to take the lead. Private sector investments will take a little while because they are still worrying about capacity utilization,” Shankar Raman said.
L&T said net profit rose to Rs1,598 crore ($328 million) in the fiscal first quarter ended June from 502 crore a year ago. Net sales rose to Rs7,360 crore from 6,900 crore.
The profit included a gain of Rs1,020 crore from sale of its stake in UltraTech Cement.
A Reuters poll of 11 brokerages had forecast net profit of Rs548 crore, excluding one-off gains, on net sales of 8,110 crore.
Shankar Raman said the proceeds from the UltraTech sale would be used to partly fund L&T’s capital expenditure of Rs1,500 crore in this year.
Margins in its engineering and construction division, which contributes 80% of revenues, rose to 11.9% from 10.5% a year ago, helped by faster execution of projects.
The company expects order flow to pick up after the June-September monsoon from the infrastructure, power and hydrocarbon segments and sees its strong balance sheet helping to grab contracts.
L&T, whose diverse activities include shipbuilding and software, currently holds cash reserves of $1 billion on its books, Shankar Raman said.
India aims to invest $20 billion a year to build roads, Union transport minister Kamal Nath said last week.
L&T shares, which had more than doubled in the June quarter beating the benchmark BSE stock index that rose 49%, were trading down 3.2% at Rs1,384 by 0950 GMT.