The stand-alone revenue of Larsen and Toubro Ltd (L&T) increased 23.6% in the March quarter, while profit after tax without extraordinary and exceptional items went up by 28%. The stock rose a bit, even after having made extraordinary gains in the recent past.
Order inflow for the full year was Rs51,621 crore. The company had said, at the end of the December quarter, that order inflow for the nine months till the end of December was Rs39,104 crore, which means that new orders during the March quarter were only Rs12,517 crore, even less than the Rs14,620 crore of new orders booked during the preceding quarter. The backlog of orders at the end of March was Rs70,319 crore, compared with Rs68,801 crore at the end of December. Clearly, order inflow during the March quarter was weak.
The company’s engineering and construction segment was the only bright spot during the March quarter, with a 38% rise in gross revenue and a 44.8% increase in profit before interest and tax. The division’s operating margins increased, not only compared with the year-ago period but also compared with the December quarter. Order inflows during March quarter in this segment amounted to Rs11,292 crore that accounts for the bulk of the new orders. But order inflow in the segment was lower than during the December quarter.
The company’s other divisions saw both lower revenues as well as lower profits compared with the year-ago period. The slowdown in the industrial sector affected both the electrical and electronics segment, and the machinery and industrial products segment.
Except for the engineering and construction segment, L&T had little to cheer about during the March quarter. Ahmed Raza Khan / Mint
So, how has the overall performance been, compared with the December quarter? Sales revenue growth, year-on-year (y-o-y), has been lower during the March quarter, an indicator of slowing demand. Yet the rate of growth in profits before other income, interest and exceptional items was much higher, on a y-o-y basis, than in the December quarter, which means operating margins have improved. Employee costs in the March quarter were lower than in the year-ago period and substantially lower than in the December quarter. Interest costs, though, continued to rise sharply and were up a huge 191% y-o-y. What’s more, interest costs were up 49% compared with the December quarter.
But the March quarter results have long been discounted by the market. What of the future? The management has earlier guided for a 25-35% increase in order inflows in FY10. The management points out, “The slowdown recently seen in the industrial sectors coupled with lower investment in the infrastructure and core sectors, may have some initial impact on the company’s ability to obtain fresh orders. However, the country’s basic need to channelize large investments into its energy and infrastructure sectors is expected to receive a fillip as a part of the pro-reform policy of the new government.” In short, what remains to be seen is the thrust the new government gives to infrastructure.
As far as the stock is concerned, it has run up a lot, just like other engineering stocks. But as an analyst put it, better to be invested in a quality company such as L&T, rather than in some of the other stocks that have spurted recently.
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