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L&T net up 17% on robust sales, beats estimates

L&T net up 17% on robust sales, beats estimates
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First Published: Thu, May 19 2011. 11 09 PM IST
Updated: Thu, May 19 2011. 11 09 PM IST
Mumbai: Larsen and Toubro Ltd (L&T), India’s largest engineering company, beat street expectations posting a 17% rise in its fiscal fourth-quarter net profit aided by robust sales and a one-time gain from selling its stake in a venture. The company warned of pressure on margins from rising input costs and competition.
Chairman and managing director A.M. Naik said on Thursday that the environment for growth over the past year was clouded by high inflation, rising interest rates and political upheaval resulting in delays in the award of projects by the government.
“In this backdrop, contrary to belief, L&T still notched up 15% in new order booking,” Naik said at an earnings briefing.
The firm’s order intake slowed to a growth of 15% for the last fiscal from a compounded annual growth rate of 37% for the past five fiscals.
The company, with a presence across engineering, construction, electrical and electronics, machinery and industrial products, financial services and information technology sectors, guided a 15-20% rise in new order intake for the fiscal year that began 1 April.
Still, when asked to put a number to the order book size at the end of the current fiscal, Naik said it could be between Rs 140,000 crore and Rs 150,000 crore. At the end of the last fiscal, the order book stood at Rs 130,217 crore.
On this base, back-of-the-envelope calculations show that a growth of 15% puts the order book size at Rs 149,749.55 crore.
At the beginning of the last fiscal, the company had initially guided for a 25% growth in its order book but warned that this could be lower. By the fiscal third quarter, it cut estimates to 18% growth, after which some orders got postponed in the fourth quarter, resulting in the 15% expansion.
Still, order intake accelerated during the fourth quarter to Rs 30,313 crore, a growth of 27% from the year-earlier quarter, and 38% of the total order intake of Rs 79,769 crore during the last fiscal year.
“Through the order market may be smaller, we’re still strong contenders in the power sector, we see good prospects in hydrocarbons, both midstream and downstream. We’re also well-positioned for offshore platforms,” Naik said, adding that due to accumulated delays in the handing out of government orders, some projects may be awarded this year.
“I am quite hopeful that things will accelerate in the latter half of the year, with stability in the environment. I think the situation looks manageable,” Naik said.
It also guided for a revenue growth of 25% in the current fiscal year.
Net profit for January-March rose to Rs 1,686.21 crore on a standalone basis from Rs 1,438.10 crore in the year-ago period, beating the average estimate of 17 analysts polled by Bloomberg that tipped net profit at Rs 1,520 crore.
The firm posted a one-time gain of Rs 226.77 crore in the quarter due to its exit from a construction-equipment joint venture with CNH Global NV in March.
Net sales rose nearly 13% to Rs 15,078.39 crore from Rs 13,374.89 crore. Total expenses grew 14% to Rs 13,279.12 crore, driven by a 27% rise in construction costs to Rs 3,895.66 crore and a 33% growth in staff costs to Rs 815.29 crore.
Investors applauded the earnings performance, sending the company’s shares 5.9% higher to Rs 1,594.90 on the Bombay Stock Exchange, outperforming the benchmark Sensex’s 0.3% rise.
While earnings before interest, debt, tax and amortization margins rose by 10 basis points (bps) from the year earlier period to 15.2% for the fourth quarter, the company warned that spiralling input costs and intense competition could exert some pressure on operating margins going forward. One basis point is one-hundredth of a percentage point.
“We’re putting a lot of effort in containing costs despite rising commodity costs. We’re doing everything possible to contain margin erosion to 50-100 bps,” Naik said.
L&T, which is streamlining its organization structure to better manage growth, said it will spin off some divisions into subsidiaries as they mature, but did not comment on any stake sale plans.
Chief financial officer Y.M. Deosthalee said that subsidiary L&T Finance Ltd was awaiting regulatory approval from the Securities and Exchange Board of India for its proposed initial public offer and added that it would wait for stable market conditions before launching the offer.
On capital expenditure plans, Naik said the firm would invest Rs 2,000 crore during the current fiscal, but since it had Rs 7,600 crore of cash in hand, wouldn’t need to raise any capital in the current fiscal.
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First Published: Thu, May 19 2011. 11 09 PM IST
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