Infrastructure and engineering conglomerate Larsen and Toubro Ltd’s (L&T’s) June quarter (Q1) results ticked all the right boxes. The key takeaway is that while the infrastructure sector is seeing growth, it is still wait-and-watch on the private sector capex cycle.

Given that infrastructure accounts for the largest part of the company’s business and hinges on government ordering, the order flows increased by a robust 37% year-on-year to 36,142 crore. Domestic orders rose by 45%, mainly from the infrastructure and hydrocarbons segment.

The management’s optimism stems from buoyant tendering activity, with sponsors willing to put money behind projects. Although domestic banks are still sorting out their internal mess, international financial institutions such as the Asian Development Bank and the New Development Bank are active.

International orders too did well, growing by 19% year-on-year, geopolitical tensions notwithstanding.

Meanwhile, L&T’s execution capabilities are mirrored in its 19% year-on-year jump in net revenue. However, the quarter marked a regrouping of business segments, with metallurgical and material handling brought under infrastructure.

This could be a reason for the slight dip in the infrastructure segment’s Ebitda (earnings before interest, tax, depreciation and amortization) margins to 6.8% from 7.1% a year ago. Besides, the first quarter’s margins are not necessarily the best, given the advances provided to vendors and suppliers for projects.

However, other businesses bolstered margins for the company and the only sore thumb remains the power segment.

On the whole, the June quarter was impressive with government-backed projects supporting growth. Consolidated Ebitda margin jumped by 160 basis points year-on-year to 10.3%, surpassing Bloomberg’s average forecast. A basis point is 0.01% Consequently, Ebitda grew by 40%, again beating Bloomberg’s estimates.

The moot question is whether the performance beat will fire the L&T stock. Note that the spate of orders announced through the quarter had little impact on the stock, which continues to be range-bound. At 1,320 per share, it trades at about 21 times estimated earnings for fiscal year 2019 (FY19).

What is needed is a few quarters of sustainable margins and earnings growth, the key for investor confidence. This does not look daunting given the company’s healthy order book of 2.7 trillion, of which the infrastructure segment comprises 2.1 trillion.

Another trigger could be an upward revision in order flow guidance that the management has retained at 10-12% growth for FY19.

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