Mumbai: India’s largest engineering and construction firm by market value Larsen and Toubro Ltd (L&T) on Thursday reported a 38% rise in its fourth quarter profits on the back of more business from West Asia and in India. It also announced a one-for-one bonus issue, driving the stock up nearly 7%.
The company’s fourth quarter profit included a one-time gain of Rs87.23 crore from a stake sale in HPL Cogeneration Ltd, a joint venture of L&T with Haldia Petrochemicals Ltd. The company’s net sales for the quarter rose around 36% to Rs8,466.87.
On a stand-alone basis, L&T’s profit after tax grew to Rs966.76 crore for the quarter ended March, up from Rs700.77 crore posted in the year-ago quarter.
Great expectations: Larsen and Toubro chairman A.M. Naik expects a growth of 30-35% for the company in fiscal 2009. (Ashesh Shah / Mint)
It also reported a improvement in its margins, which came in at 15.9% for the quarter, against 15.5% reported last year.
The company’s net profit rose significantly despite a provision of Rs171.53 crore to take care of its own mark-to-market losses for the outstanding derivative contracts and an additional Rs90.22 crore for the losses of its subsidiaries.
Mark-to-market is an accounting practice of valuing a financial asset in accordance with its current market price.
“The provisions are mainly for currency variations and interest costs,” L&T chief financial officer Y.M. Deosthalee said.
L&T also incurred losses from hedging on commodity prices. The company’s overseas arm, Larsen and Toubro International FZE, had losses of around Rs200 crore in the last fiscal year because prices of zinc and other commodities it bet on fell, Deosthalee said.
According to him, the firm is trying not to sign any contracts in cement and steel without an escalation clause in them and “looking at cost-plus jobs” to minimize the impact of rising input costs. Despite these steps, there will still be a risk of around 25% on these contracts, which it will try to minimize in other ways.
“Commodity hedging will continue, but we will be much more cautious,” Deosthalee said.
L&T’s stock rose 6.64% to close at Rs2,889.10 on the Bombay Stock Exchange following the earnings and bonus issue announcement, on a day when the benchmark index Sensex fell 1.27% to 16,316.26.
L&T chairman A.M. Naik said the company is maintaining its outlook for the 2008-09 fiscal year, and expects a growth of 30-35% in the year. “Our margins are also likely to remain the same in the current fiscal,” Naik added.
Even so, higher wages and steel costs may dent earnings growth in the short term, said Prateek Agrawal, the head of equity at Bharti Axa Investment Managers Pvt. Ltd, a Mumbai-based mutual fund company that plans to start operations later this year.
Indeed, the company said there were concerns over the medium term outlook for its business. In the near term, however, the company “is reasonably confident of producing healthy results in the near term,” the statement said.
The company’s stock has fallen more than 30% since the start of the year, while the Sensex has fallen around 20%.
L&T said the engineering and construction segment, which accounts for more than 75% of the group’s business, reported an increase of 40% in order inflows during the year at Rs35,392 crore, helped by infrastructure and industrial sectors that have attracted sizeable investment in recent years.
The company also said it plans to sell shares in its computer software and finance units in the next three years.
Bloomberg contributed to this story.