Larsen and Toubro Ltd (L&T) has announced project wins worth Rs14,086 crore in the quarter ended March, according to data collated by IIFL Capital. The brokerage also points out that the quarterly run rate of orders that are not announced is roughly Rs4,000-4,500 crore. In the first three quarters of fiscal 2009-10, the company had announced order inflows of Rs45,729 crore. For the year, therefore, order inflows are likely to be around Rs64,100 crore, which is around 23% higher than the inflows in 2008-09.
The company had been saying that it expects order inflows to grow by 30% in 2009-10, but that was always expected to be a stretch, since inflows had grown by just 17% in the first three quarters. The shortfall, therefore, isn’t likely to cause much disappointment. More so because it hardly makes a dent on the company’s huge order book. As of end-December, the order book stood at Rs91,104 crore. Based on the order inflows in the March quarter and the company’s revenue guidance for the fiscal year, this is likely to rise to around Rs95,500 by the end of March. If, say, order inflows had grown at the firm’s targeted rate of 30%, incremental order inflows over the reported number would be Rs3,500 crore. The impact on the order book, therefore, is only around 3.7%.
Graphic: Ahmed Raza Khan/Mint
With an order book that’s around 2.6 times annual revenue, a slight drop in order inflows doesn’t make much difference. More importantly, as IIFL Capital points out, “This is the highest order intake in a quarter for the company. The fact that it comes without help from large orders points to a gradual recovery in the capex cycle, and bodes well for FY11 order inflow outlook.”
L&T shares had nearly trebled in the three months between March 2009 and June, but have since been flat even though the markets have risen gradually. One of the reasons for this was the markets’ worry about execution risk. Revenue in the first three quarters was far lower than what the street had estimated, because of a delay in the financial closure of certain projects. Analysts expect orders to translate into revenue at a healthier pace in the coming quarters, thanks to the improvement in business sentiment and liquidity conditions. Still, valuations are rich at around 31 times 2009-10 earnings. According to Kotak Institutional Equities, earnings are estimated to grow at an annual average rate of around 21% between FY10 and FY12.
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