Mumbai: Larsen and Toubro Ltd (L&T), India’s largest engineering company, said first quarter order inflow grew at the slowest pace since the global economic crisis in 2008, hurt by the challenging economic environment even as the company retained its full-year sales and order forecasts.
In May, L&T had forecast a 15-20% increase in new orders and a 25% rise in revenue for the year to 31 March.
“The comfort which we have based on the numbers is reasonably high,” chief financial officer Y.M. Deosthalee said at an earnings briefing. “Therefore, in terms of our overall guidance and indication to the market is there is no change.”
Order intake for the three months ended 30 June rose to Rs 16,190 crore from Rs 15,624 crore a year earlier—a growth of just 4%. The slowdown comes on the back of the firm’s order intake slowing to 15% in the last fiscal from an average annual growth rate of 37% in the previous five fiscals.
Chairman and managing director A.M. Naik had then blamed the factors like high inflation, rising interest rates and political upheaval resulting in delays in the award of projects by the government for the slowdown in orders.
Still, the overall order book position rose by 26% to Rs 136,172 crore from Rs 107,816 crore a year earlier.
“Unless something drastic happens, based on the current assessment, we feel reasonably confident that 15% (growth in order intake) is achievable,” Deosthalee said.
Market watchers, however, weren’t so benign on the outlook, warning that the heightened risk perception and uncertainities in the global economy will add to corporate India’s challenges.
“The primary impact will be on the availability and cost of funding, both domestic and international,” said Roopa Kudva, managing director and chief executive of ratings agency Crisil Ltd. “The second impact will be on demand, export growth is likely to slow down and domestic private consumption, which has been strong so far, could moderate as consumers become more cautious.” Crisil is the Indian unit of global ratings company Standard and Poor’s.
L&T derived 16% of orders from international markets in the first quarter, while the share of global orders stood at 9% in the overall order book.
“There is no major slowdown in the middle east countries. Because of the recent political upheaval in that region, the government’s there are looking at investing more for local growth. Besides, these economies are oil dependent and won’t be impacted much (by the slowdown),” K. Venkataramanan, president for operations, said. He said that order inflows from international markets were growing at 20%.
Order from Gulf countries comprised 7% of order inflows in the first quarter and 6% of the total order book.
The engineering company expects orders from oil and natural gas explorers and the fertilizer sector to drive growth in the current fiscal year.
L&T’s first quarter net profit, excluding units, rose 12% to Rs 746.15 crore from a year earlier, beating the Rs 744 crore median estimate of 22 analysts compiled by Bloomberg. Sales grew 21% to Rs 9,482.61 crore. Earnings before interest, taxes, depreciation and amortization margin (Ebidta) narrowed by 90 basis points (bps) to 11.9% for the quarter, hurt by rising input costs, job-mix changes and seasonal factors, it said.
One basis point is one-hundredth of a percentage point.
L&T also kept its forecast on operating margin little changed.
The company said Ebitda will fall by 50-70 bps during the fiscal. Earlier in May, it had guided for a 50-100 bps erosion in profit margin.
The scrip fell 0.6% to Rs 1,629.85 on the Bombay Stock Exchange on Monday, outperforming the 1.8% decline in the exchange’s benchmark Sensex.
Deosthalee said that input costs could remain at current elevated levels for sometime but if global growth slows then commodity prices could soften towards the end of 2011.
Separately, the company said R. Shankar Raman will succeed Deosthalee chief financial officer on 6 September as the latter moves on to become chairman and managing director of unit L&T Finance Holdings, which had raised $252 million from an initial public offering last week and will start trading on 12 September.