L&T March quarter profit up 44%, beats market expectations

L&T March quarter profit up 44%, beats market expectations

Mumbai: India’s largest engineering and construction company Larsen and Toubro Ltd (L&T) on Monday reported a profit of Rs1,438 crore for the March quarter, beating analysts’ expectations.

The quarterly profit is 44% higher than the Rs998 crore in the March quarter last fiscal.

Revenue rose 28% to Rs13,374 crore from Rs10,468 crore last fiscal as domestic orders picked up, the company said in a media presentation.

L&T’s Ebitda (earnings before interest, taxes, depreciation and amortization) increased 1.1 percentage points to 15.1% from 14% in the March quarter last year.

Shailesh Kanani, senior equity research analyst at Angel Broking Ltd, said the numbers are much better than expectations and could lead to a re-rating of the stock.

“I had expected a topline growth of 22% while the company delivered a 28% increase; quarterly profits are also higher than the Rs700 crore expected by us," he said, but expressed doubts about margins.

“There is a threat of declining margins, but at this level even if it falls by 100 basis points, it won’t have much of an impact," he cautioned.

That view was shared by L&T chairman A.M. Naik, who warned of a “more competitive and very challenging year" ahead due to increased competition and because the company may not be able to sustain the high margins.

“Nowhere in the world does a company like ours have these kind of margins and now with the commodity prices also increasing this year, the 1-1.5% advantage we had of buying steel and other products last year has to be made up by efficiency and cost cutting," Naik said.

On Monday, L&T shares gained 5% to Rs1,605.55 on the Bombay Stock Exchange, while the benchmark Sensex index fell 0.94% to 16,835.56 points.

Naik said projects in infrastructure, hydrocarbons and power helped boost earnings in 2009-10.

Ankit Babel, an analyst with Dolat Capital Pvt. Ltd, said fears over project execution capabilities from the December quarter have vanished.

“Last time, there were execution fears because financial closures were delayed," he said, adding that improved economic conditions helped L&T make up for the first nine months.

L&T is also looking to list its financial services business, Naik said. “There is a very serious plan to unlock shareholder value probably in the second half of the year."

Chief financial officer Y.M. Deosthalee, however, said this could also mean selling a stake to a private equity investor or a merger with another company.