Mumbai: India’s largest engineering and construction firm, Larsen and Toubro Ltd (L&T) reported its first dip in sales in seven years and pared revenue growth expectations by a third for the year to 31 March amid a 50% profit plunge, pulling down the company’s shares.
Meeting goals: Chief financial officer Y.M. Deosthalee is confident of meeting the revised year-end targets, sees pickup in projects in Q4. Kedar Bhat / Mint
Revenue dropped 6.43% to Rs8,139 crore in the three months ended 31 December from Rs8,699 crore a year ago. Net profit dropped to Rs759 crore from Rs1,520 crore. Analysts said the company may not be able to meet the newly revised revenue target.
“Sales revenue remained subdued as a result of slower progress of certain jobs due to various extraneous factors as well as the effect of delayed financial closure of a few infrastructure projects,” the company said in a statement.
L&T cut its 2009-10 revenue growth guidance to 10% from the 15% it predicted in the September quarter.
Investors hammered the scrip after the results were announced, sending it down Rs112, or 6.85%, to Rs1,524 on Thursday on the Bombay Stock Exchange. The bellwether equity index, the Sensex, lost 423 points, or 2.42%, to close at 17,051.
“The degrowth is on the back of order delays but we expect pickup in projects in the last quarter,” chief financial officer Y.M. Deosthalee told CNBC-TV18. “Ten per cent growth in revenues for the year will need us to add Rs13,600 crore in revenue in the last quarter and we are fairly confident of doing that,” he added.
L&T is banking on its order backlog of Rs91,104 crore at the end of December, which was higher than Rs81,623 crore at the end of September.
The company’s engineering and construction (E&C) businesses, which contributes 86% of its revenue, disappointed the most as revenues in these segments dropped 9% to Rs6,997 crore from Rs7,669 crore.
Shailesh Kanani, an equity analyst with Angel Broking Ltd, said lower revenue from the E&C business dragged overall sales down. He was expecting L&T to earn Rs8,350 crore from its E&C business.
“Order execution by the company has not really kicked in in the last two quarters. We do not expect the company to fulfil its new guidance of 10% growth,” he said. “However, there could be a pickup in the next few quarters. The company has a good track record.”
“Execution has been a problem,” said an analyst with a local brokerage. “To keep track with its guidance, the company will have to give strong numbers in the last quarter with possibly a 35% growth in revenue.” The analyst spoke on condition of anonymity.
Deosthalee said the company is confident of delivering higher-than-expected growth in the last quarter.
“There were customer-related problems in one or two projects and we are removing them from our order book,” he said. “We are confident of taking the order book to Rs1 trillion by the end of the quarter. The problems linked to financial closure of projects are over and now we are focusing on execution capacity and capability.”
The company’s operating margin, however, widened to 12.5% from 11.2% in the December quarter of 2008.
Better-than-expected margins and a large order book are the two positives for the firm in the next quarter, say analysts.
“The revenues were a big disappointment this quarter, much lower than expectations of Rs9,900 crore,” said another analyst at a domestic brokerage, who too declined to be named. “I don’t expect the company to fulfil its guidance of 10% revenue growth. It may achieve around 5%.”