Mumbai: Riding on strong orders and a one-time gain from a stake sale in a unit, India’s top engineering and construction company Larsen and Toubro Ltd (L&T) posted a 42.45% increase in net profit for the September quarter.
Net profit increased to Rs.1,137.31 crore for the financial second quarter from Rs.798.39 crore in the corresponding period last year. This included a Rs.214 crore gain from the sale of a stake in a unit, the company said on Monday.
Sales rose 17.35% to Rs.13,195.23 crore, as India’s push to attract $1 trillion of infrastructure spending by 2017 stoked construction of factories, ports and railways.
Analysts had on average forecast a net profit of Rs.872.3 crore on sales of Rs.13,188.9 crore, according to estimates compiled by Bloomberg.
L&T recorded an impressive 30% year-on-year (y-o-y) growth in order inflow at Rs.20,967 crore, sustaining its momentum from the first quarter of the fiscal, the company said in a statement.
The major orders came from the infrastructure and hydrocarbon sectors. The overall order book stood at a healthy Rs.1.59 trillion as at 30 September, 12% of which were international orders.
“We are not changing our guidance for the year and expect to add 15-20% to the order inflow of last year,” said chief financial officer R. Shankar Raman. The company plans to achieve an order inflow of Rs.80,000 crore by the end of fiscal 2013.
The company has also been hiring. “The staff cost has gone from Rs.1,078 crore to Rs.1,300 crore. We have added about 5,000 employees over the last one year to ensure we have adequate manpower bandwidth to execute the large order book,” Raman said.
The management, however, sounded a note of caution. “The uncertainty prevailing around the revival of growth in the global economies and the slow pace of reforms in the domestic economy have led to deceleration of growth across the sectors,” L&T said in its statement. It attributed the concern to tight liquidity conditions and volatility in the currency markets. “Inflation continues to remain elevated, exerting pressure on operating margins,” the statement added.
But, positively, a rebounding of industrial production and improved credit demand were seen in many sectors towards the end of the quarter, it said.
The government recently announced a number of measures hoping to allay investors’ fears, attract capital and kick-start growth in an economy grappling with persistently high inflation and slowing production and construction activity.
India’s economy expanded at 5.5% in the quarter ended in June, faster than the three-year low of 5.3% in the previous quarter. L&T has been sustaining its growth momentum on the back of its strong and diversified business portfolio and increasing international presence, the company said, adding that it is placed well to realize its near-term targets and medium-term plans.
On 27 August, L&T sold its subsidiary L&T Plastics Machinery Business Ltd to Toshiba Machine Co. Ltd for Rs.220 crore, which contributed to its overall net profit in the September quarter.
Raman also said the company had invited bids for stake sale in Infrastructure Development Projects Ltd (IDPL) for up to 25%. “However, the actual amount of stake sale will depend on the valuation we receive,” he added. While Raman did not comment on whether the company was looking to exit Dhamra Port Co. Ltd, he said it was “a part of IDPL, in which L&T is looking to sell stake”.
Amol Rao, a research analyst with Anand Rathi Financial Services Ltd, said “even if you take out the extraordinary item, the growth is pretty good at around 15% in these tough times. And the very fact that they have maintained the margins at round 11% is very good. Last year, not a lot of their orders materialized. Now we have to see how many orders they will book in the coming year”.
He added that the company would continue to get more international business. “We have already seen 17% of the revenue this quarter coming from international sales, and going forward also we see the company focus on international sales,” said Rao.
The company’s quarterly numbers are largely in line with estimates though revenue and after-tax profit lagged a bit, said Sanjeev Zarbade, vice-president (private client group research), at Kotak Securities Ltd.
“Revenues were a tad lower at Rs.131 billion, up 17% y-o-y, versus estimate of Rs.137.4 billion... Ebitda (earnings before interest, taxes, depreciation and amortization) margin came at 10.7% versus 10.4% y-o-y and versus our expectations of 9.8%,” Zarbade said, but he added that “in a difficult environment, the company has been able to manage its profitability well”.
Shares of L&T ended at Rs.1,668.20 on the BSE on Monday, up 2.17% from the previous day’s close, while India’s benchmark index, the Sensex, gained 0.59% to close at 18,793.44 points.
P.R. Sanjai and Bloomberg contributed to this story.