Mumbai: The country’s largest engineering and construction company, Larsen & Toubro Ltd (L&T), on Friday slashed its guidance for new order inflow growth in the current fiscal year to a third, sending its shares sharply lower. It’s the second time in two years that the company has lowered its guidance.
The firm now expects order inflows to increase by 5% in the fiscal, down from an earlier forecast of 15%-20%, because of a slowdown in government orders, subdued investment sentiment, heightened competition and consequently a lower strike rate for winning orders. The last time that L&T saw single-digit growth in order inflows was in 2002.
L&T’s shares closed 3.54% lower at Rs 1,336 on the Bombay Stock Exchange on a day the benchmark Sensex fell 0.89%.
The company received Rs 16,096 crore of orders in the fiscal second quarter, taking orders for the first six months of the year to Rs 32,286 crore, a fall of 11% from the Rs 36,090 crore it reported in the comparable period last year.
“We did an assessment of the revised (economic) scenario and we’ve seen a sea change... There has been considerable slowdown in the investment momentum, decisions are being deferred, projects that were scheduled to hit the market are getting reviewed and consequently, the projects that do come up are being severely competed (for), so the win rates are dropping for all participants,” chief financial officer R. Shankar Raman said.
An analyst with a local brokerage who didn’t want to be named said while a cut in guidance had been expected, the extent of the cut has come as a surprise.
“We remain negative on the sector as the overall macroeconomic scenario isn’t getting better. On a relative basis, they’re still better placed to peers as the order book-to-bill ratio is better and there is visibility on revenues for the next 18 months,” the analyst said.
The company maintained its revenue growth outlook for the year at 25%, aided by its large order backlog of Rs 1.42 trillion.
Net profit for the July-September quarter rose 4% to Rs 798.39 crore, beating the Rs 745 crore median estimate of 18 analysts compiled by Bloomberg. Net sales grew by 19% year-on-year to Rs 11,245 crore.
Its earnings before interest, taxes, depreciation and amortization (Ebitda) margin fell by 20 basis points to 10.4% for the quarter from a year earlier. One basis point is one-hundredth of a percentage point.
Raman said the Ebitda margins could be “vulnerable” to dipping between 75-125 basis points in the fiscal from the peaks seen in the last fiscal year. The company initially guided for a 50-100 basis point margin erosion in May, but lowered this to 50-70 basis points in August due to a dip in global commodity prices.