Mumbai: India’s biggest engineering and construction company Larsen and Toubro Ltd (L&T) posted a 15.74% increase in net profit for the quarter ended 30 June, as it benefited from strong order inflows and a doubling of so-called other income, including treasury investments.
Net profit rose to Rs 863.65 crore in the quarter from Rs 746.15 crore in the year-ago period, the company said on Monday. Consolidated revenue rose 28.80% to Rs 12,561.19 crore from Rs 9,751.80 crore.
Net sales were up 26% to Rs 11,955.35 crore from Rs 9,482.11 crore.
L&T’s profit beat the Rs 813 crore median of 19 analysts’ estimates compiled by Bloomberg.
Order inflows rose 21% to Rs 19,594 crore and the order book swelled to Rs 1,53,095 crore, an increase of 12%. The company’s other income, or earnings from avenues other than the company’s main business operations, rose 125% to Rs 605.84 crore in the quarter.
L&T’s chief financial officer R. Shankar Raman told reporters that Rs 260-270 crore came in dividends from subsidiaries and Rs 220 crore from treasury investments.
The company is bracing for a slowdown in its domestic business because of an economic downturn, and is engaged in an an overseas push—especially in West Asia, Brazil and the Commonwealth of Independent States that comprises former Soviet republics.
L&T’s total expenses surged 30% to Rs 11,060.3 crore, a bulk of it on account of employee benefits and sales, administration and other expenses. “As far as the input costs are concerned, the major ones have all come off the inflationary peak that we saw last year,” Shankar Raman said. “The labour inflation (employee costs) is real.”
He added that some of their sectors, “especially transportation and buildings and factories, have seen some momentum”.
L&T shares lost 1.12% to close at Rs 1,374.5 per share on Monday on BSE, broadly in line with the benchmark index Sensex, which lost 1.64% to 16,877.35 points.
Sector analysts seem divided on their assessment of the company’s financials.
“Overall, the (impact of) slowdown is clearly evident as the uptake in equipment is not happening. The level of forex (foreign exchange) losses is also something we would be looking into—how it happened and how will it pan out?” said Nirav Vasa, sector analyst with Mumbai-based SBICap Securities Ltd.
“Other income” is making the company “look good”, he said.
The company, in its analysts’ presentation on Monday, mentioned that the spike in the sales, administration and other expenses category was due to “forex MTM (mark-to-market) valuations”, but did not give specific details. Shankar Raman pegged these forex losses at Rs 267 crore in the press briefing. MTM losses typically occur when a company is incurring expenses and earning income in multiple currencies at a time when the exchange rates are moving.
Taher Badshah, senior fund manager and co-head of equities at domestic brokerage Motilal Oswal Securities Ltd, said: “Margins (after adjusting for mark-to-market foreign exchange hit) are in line with expectations.”
With its strong order inflow, “it (L&T) remains the best play in the infrastructure space in India”, Badshah said.
The company in May had predicted 15-20% growth in revenue and orders during the fiscal year ending March 2013—a forecast the company reiterated on Monday.
“Our endeavour is to maintain margins as before (11.8% for FY13), but we should factor in a 50 basis points volatility. Our original guidance should stay,” said Shankar Raman.
One basis point is one-hundredth of a percentage point.
L&T had signalled in May a huge overseas push to fuel its future growth as it braced for declining domestic orders as companies defer capital expenditure and investment decisions.
Chairman A.M. Naik said in May the company was doing well in the United Arab Emirates and Oman, and was looking to improve its market share in Kuwait, Saudi Arabia and Qatar; it had just “seeded its business” in Brazil and Turkey and was going to enter Iraq and Indonesia.
Bloomberg contributed to the story.