L&T profit up 26%, analysts unimpressed

L&T profit up 26%, analysts unimpressed
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First Published: Thu, Oct 22 2009. 11 12 PM IST

High on hope: L&T chief financial officer Y.M. Deosthalee says he expects the company’s order book to grow strongly. Kedar Bhat / Mint
High on hope: L&T chief financial officer Y.M. Deosthalee says he expects the company’s order book to grow strongly. Kedar Bhat / Mint
Updated: Thu, Oct 22 2009. 11 12 PM IST
Mumbai: India’s biggest engineering and construction company by market value, Larsen and Toubro Ltd (L&T), on Thursday reported a 26% rise in net profit to Rs580 crore for the quarter ended September, and said it would vie for engineering projects in new markets such as Brazil and South Africa.
The profit was notched up on revenue of Rs7,866 crore. Of the profit, Rs244 crore, or 42%, came from so-called other income, which includes interest income and rentals of property or equipment. It included Rs27 crore from the sale of an associate.
High on hope: L&T chief financial officer Y.M. Deosthalee says he expects the company’s order book to grow strongly. Kedar Bhat / Mint
L&T raised its guidance for orders this fiscal year to March as construction activity picks up, but said funding delays were still slowing some projects. It expects new orders to increase at least 30% for the year, up from its earlier forecast of 25%, but said revenue growth may slow to 15% from the earlier estimate of 15-20%.
Analysts were left unimpressed by the numbers. L&T shares fell 4% to Rs1,608 when trading ended on Thursday, while the Bombay Stock Exchange’s bellwether Sensex index fell 1.29% to 16,789.74 points.
“Larsen and Toubro delivered a mixed set of numbers for second quarter of FY10, with sales coming in below expectation, though the company recorded a robust growth in order inflow, while an improvement in the operating margin helped its profitability for the quarter come in line with expectation,” securities house First Global India said in a report issued immediately after L&T announced results.
“The growth momentum in L&T’s order inflow is expected to continue in second half of FY10, with opportunities arising across various sectors, such as infrastructure, power, hydrocarbon, and railways, which will aid the company’s revenue growth from FY11 onwards,” it said.
L&T’s profit numbers were higher mainly because of the extraordinary income from the stake sale, said Abhineet Anand, who tracks the company at Antique Stock Broking Ltd.
“The numbers are negative because if you take out the sale of this company stake, then the profit numbers are even lower. I had expected profit of Rs590 crore,” Anand said.
Senior executives of L&T chose to focus on the rise in its order book. L&T’s order book stood at Rs81,623 crore, up 30% versus the same period last year. Chief financial officer Y.M. Deosthalee said he expects the order book to grow strongly.
“In the beginning of the year, we had said that we expect 25-30% growth in the order inflow but considering the growth we have had and the pipeline, we are now increasing the guidance to 30% plus,” he said.
“Things are stabilizing and we hope to have a better second half. There are opportunities in infrastructure, power and hydrocarbons (oil and gas), we should see a healthy growth in order inflow but they need to be converted into revenue and sales. Overall, we will maintain our margins,” Deosthalee said.
L&T expects to maintain margins for its main engineering and construction business at 12-12.5% this year. Deosthalee also alluded to an improvement in margins by 4% during the quarter which he said “is not arising from cost cutting alone”.
The company is also looking at business opportunities in emerging markets such as Brazil, South Africa and Malaysia.
“There is scope in the hydrocarbon business in these markets and also in other African markets, we are looking at setting up business there,” Deosthalee said.
Analysts expressed doubts on whether the company could execute such a huge order book this year.
“Their guidance is for a 30% rise in the order book but that kind of order book execution is not possible,” said an analyst with a private brokerage. He declined to be named because he is not authorized to speak to the media.
Another analyst from an institutional investor said the revenue growth was well below expectations, but the order book was promising.
“A revenue growth of 3-4% is much below expectations. I had expected a 20% growth, but the only hope now is the order book pipeline. The company will have to demonstrate its execution capabilities to do well in the second half of the year,” said the analyst, who also didn’t want to be named.
L&T owns an 8.31% stake in software services firm Satyam Computer Services Ltd for which it made an unsuccessful bid earlier this year. Deosthalee said L&T will look to sell the stake because it is not a strategic stake.
“It is just a portfolio investment now. The investment lock-in is over but we will have to take into account our tax position, how the company is doing and if there is a need for money from our side before deciding to sell,” he said.
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First Published: Thu, Oct 22 2009. 11 12 PM IST