Mumbai: India’s biggest engineering company, Larsen and Toubro Ltd, or L&T, on Wednesday reported a less-than-expected 32% gain in its second-quarter profit because of investments in new businesses including railways and ship building.

Slow times: A.M Naik, chief executive officer of L&T Ltd. The company’s operating margin shrank to 8.9% from 9.8% a year earlier. Ashesh Shah / Mint

Five analysts predicted a median estimate of Rs495 crore. Revenue rose 40% to Rs7,840 crore.

L&T’s 30% forecast for revenue growth may be reviewed if the global economy deteriorates, chief financial officer Y.M. Deosthalee said.

Orders including building steel plants and roads may slow after India’s industrial output expanded at the slowest pace on record in August.

“While the company has enough orders for the next couple of quarters, we will have to watch the order inflow trend because of the economic slowdown," said analyst Kunal Sheth, who has an “accumulate" rating for the stock at Religare Securities Ltd in Mumbai. Operating margin “was a disappointment," he said.

L&T’s operating margin shrank to 8.9% from 9.8% a year earlier as it spent more to recruit professionals for a railway wheel factory and shipyard.

Shares in the company closed the day at Rs893.15, down 11.01% from their previous close on the Bombay Stock Exchange.

The stock has fallen 55% this year, compared with a 42% drop in the benchmark Sensex, on concern orders may slow as the global credit crisis holds up project financing.

Operating margin

The operating margin, excluding the investments made for new businesses, has been maintained, Deosthalee said on Wednesday.

L&T will be able to grow its revenue more than 30% this year based on the current order backlog of Rs60,930 crore, he said.

“We’ll review the numbers if the situation further deteriorates," Deosthalee said.

India’s August industrial production grew at 3.8% as interest rates at a seven-year high prompted consumers to delay purchases of cars, fridges and other manufactured goods, the statistics office had said on 10 October.

Income from sources other than L&T’s main operations surged to Rs160 crore from Rs23.33 crore a year earlier, boosted by dividends from subsidiaries and income from investments.

The company, founded in 1938 by Danish engineers Henning Holck-Larsen and Soren Kristian Toubro, expects new businesses including railways, forging and power will help achieve its target for revenue growth, Deosthalee said.

“Orders from power sector are on the rise," he said.

India, Asia’s third largest economy, added 9,263MW of power generation capacity in the year ended 31 March, power minister Sushil Kumar Shinde had said on 3 April.

The nation has set a target to add 78,755MW of capacity under its five-year development plan ending 31 March 2012, he had said in August.