L&T sees full-year order inflow growth at 15%
Mumbai: Larsen and Toubro Ltd (L&T), India’s largest engineering and construction company, on Wednesday said that it expects an order inflow growth of 15% and a revenue growth of 12-15% in fiscal 2017, pinning its hopes on better investment climate and more orders from new foreign markets.
L&T, a corporate proxy for the broader economy, reported a higher-than-expected 18.55% increase in net profit for the fourth quarter ended 31 March, helped by higher sales in eight of its 10 business divisions.
The private sector is going through a very “stressful time”, forcing government to increase investments on its part, but there is improvement in execution of projects on ground, said group executive chairman A.M. Naik. “The prospects this year look better... We have more confidence in what will happen over the next six-twelve months compared to six months ago.”
Naik said L&T will pitch for orders from international markets in Far East and Africa as well as the Middle East, its largest global market, continues to face weak investment. He said some of the projects in the region, which were earlier deferred, could now see a revival. Middle East accounts for about 19% of L&T’s total order book.
“We are bidding now in Africa and Far East. Those were not the territories we had concentrated on before. So that will make up for any shortfall in Middle East,” he said.
L&T, which also has interests in finance and information technology sectors, has in recent years been hurt by stalled industrial projects and a private investment cycle that’s yet to take off, coupled with slower growth in key overseas markets. The company, with its various 82 business units, is a complex structure and will have to be simplified, L&T said.
Consolidated net profit in the three months ended March stood at Rs.2,453.64 crore, up from Rs.2,069.64 crore in the year-ago quarter. Net sales rose 18.51% to Rs.32,812.24 crore from Rs.27,687.12 crore in the year-ago quarter. About 54% of the total revenue in the quarter was from its infrastructure business, in which revenue rose about 19% to Rs.18,654.9 crore from a year earlier.
Thirteen analysts polled by Bloomberg had expected L&T to report a consolidated net profit of Rs.1,896.7 crore, while 15 analysts had expected consolidated net sales of Rs.31,416.3 crore.
“This year, one of L&T’s biggest bets is on defence. The direction that they are talking about taking their business in is a positive as they look to either exit or sell stake in balance sheets heavy businesses and focus on execution. The current complexity of the business is too high, which needs to be reduced,” said Devam Modi, analyst, Equirus Securities Pvt. Ltd.
L&T expects to secure at least Rs.50,000 crore worth of orders in defence across the four areas of ships, submarines, communications, and guns and armoured vehicles, Mint reported on 1 April.
L&T garnered fresh orders worth Rs.1,36,858 crore at the group level during the quarter, which constituted 62% of domestic and 32% of international orders. The consolidated order book of the group rose 7% to Rs.2,49,949 crore for the year ended 31 March, with international orders constituting 28% of the total.
Order inflows in the March quarter, however, fell 9% against with a year ago. Chief financial officer K. Shankar Raman said fiscal 2016 was one of the toughest years for the infrastructure sector and the decline in order inflows reflects the weak investment environment.
“The domestic market continues to hold promise for revival of growth. Private sector and industrial capex is likely to take time to revive as investment sentiment is weak. Execution conditions remain challenging, mainly due to limitation of the projects/ clients to raise finances and slower clearances for land and environment. Banking system was stretched in corporate lending,” L&T said in a statement.
“Growth momentum in the infrastructure segment rests mainly on the government initiatives in the core infrastructure such as transportation, power T&D (transmission and distribution), defence, smart cities and water projects. Defence opportunities could materialize if the policy framework for private sector participation is rolled out,” it said.
Naik said the company would at least a week to decide the timeline for the initial public offering (IPO) of unit L&T Infotech. The company has received the capital markets regulator Securities and Exchange Board of India’s (Sebi) approval for the IPO.
In the March quarter, revenue in hydrocarbon, information technology and technology services (IT&TS), and power divisions rose 11.3%, 16%, and 51%, respectively, while those in financial services, heavy engineering, and developmental projects rose 19%, 5% and 48.7%, respectively. Revenue in electrical and automation and metallurgical and material handling divisions fell.
Total expenses in the quarter rose 16.4% to Rs.29,118.14 crore.
L&T said its board approved a dividend of Rs.18.25 per share.
On Wednesday, L&T’s shares closed up 4.02% at Rs.1,291.30 a piece on BSE, while India’s benchmark index Sensex rose 2.28% to close at 25,881.17 points.
The earnings were announced after markets closed.