After a roller-coaster ride, shares of Larsen & Toubro Ltd (L&T) surged to Rs.1,585.50, up 1.56%, after the company announced December quarter results. A strong 14% jump in orders from a year ago to Rs.19,545 crore assuaged fears of a slowdown in international and domestic markets hitting the firm’s order book. In fact, L&T’s order book stands tall at Rs.1,62,334 crore, with the contribution from international markets inching up.
More importantly, with this quarter, the company may be among the few to achieve annual order inflow guidance, pegged at around Rs.80,000-84,000 crore, as nearly three-fourths of this has been clocked in the first nine months of fiscal 2013, and historically the fourth quarter (March) is the best. Also, 22% of its order inflows accruing from international markets is in line with the management intent to improve the company’s presence abroad.
However, it has to be noted that the robust order inflows took away focus from L&T’s operating performance, which came in a tad lower than Bloomberg’s consensus estimates. Net revenue rose 10.3% to Rs.15,429 crore from a year ago, considerably lower than the 18-20% it has clocked in the last several quarters. The engineering and construction (E&C) segment, which comprises 88% of the company’s business, grew 11.5%. The electrical and electronics segment posted subdued growth, whereas the mechanical and industrial products segment showed a contraction.
At a press briefing, the management highlighted increasing input costs and sluggish volumes, which resulted in a slight drop in operating margin to 9.6%. But this was almost 100 basis points (or 1 percentage point) below consensus estimates. Operating profit rose 8.1% to Rs.1,474.9 crore, lower than growth in the preceding quarters, and was primarily due to the E&C division’s profit remaining unchanged.
Consolidated net profit for the quarter rose 12% to Rs.1,121.8 crore, slightly below the Street’s expectations. Net profit was shored up by a 24% jump in other income.
For now, investors have little reason to worry, as the firm seems well on track to achieve its guidance of 20-25% growth in order inflows and revenue for fiscal 2013. Relatively sluggish performance in terms of December quarter’s revenue and profit growth could be due to the nature of large project cycles. This could well be offset in the March quarter.
In fact, as a strong diversified play, L&T’s stock has not seen a de-rating in its valuation, as has been the case with most capital goods and infrastructure stocks in the last few quarters.