India's largest engineering and construction company Larsen and Toubro (L&T) has acknowledged that the general slowdown in the economy has not spared the construction segment. Speaking to journalists, R Shankar Raman, Whole Time Director and CFO, L&T, said: "Economic growth has slowed down considerably and that's not good news for companies like us which depend on investment momentum. There are deferments of projects and programmes, but these are opportunities deferred and not lost."
The company reported net profit of ₹2352 crore for the December 2019 quarter, growing 15.2% over the same period last year. Despite a subdued local business environment, the company won new orders of ₹41,579 crore during the quarter. International orders played a significant role, with large value orders in power transmission and mettalurgical and material handling helping boost the total foreign order book this quarter by ₹17,901 crore. However, the order book rose a marginal 2% year-on-year.
The company missed market estimates by a whisker, with profit coming lower than the ₹2404 crore estimated by a Bloomberg poll of 11 analysts.
Revenue from operations rose 6% year-on-year to ₹36,242 crore. International revenues carried this growth, rising 36% year-on-year this quarter to ₹12,871 crore.
The infrastructure segment saw operating profit margins improve from 5.4% last year to 6.1% while the segment saw new orders of ₹28,115 crore, growing 28% year-on-year. The segment recorded customer reviews revenue of ₹17,249 crore, declining 5% year-on-year due to challenges in Andhra Pradesh, Maharashtra and Delhi.
SN Subrahmanyan, MD and CEO, said that stretched balance sheets among their competitors sometimes places L&T in the position of being the sole bidder for large infrastructure projects. "There are orders where L&T is the single bidder and hence, we have to bid in 2-3 rounds to win projects. In certain government projects, L&T's pricing is below the government's budget." He said that in such cases, the government has cut the scope of the projects to meet their budget constraints."
The IT and IT Technology services segment achieved total customer revenue of ₹6090 crore, including ₹1965 crore on account of the Mindtree acquisition.
The power segment bounced back this quarter with "good revenue visibility" after the company won one major thermal power plant and a slew of flue gas desulpharisation orders. New orders of ₹816 crore came in while the segment recorded customer revenue of ₹694 crore. The heavy engineering and defence segments won orders of ₹497 crore and ₹168 crore respectively. The hydrocarbon segment saw revenue rise 17% year-on-year to ₹4386 crore although it did not win any new major orders. Financial services recorded revenue of ₹3550 crore driven by growth in loan assets of focused business lines, the company said, although the operating margin was lower this quarter at 21.3% on account of higher credit costs, lower disbursements and more provisions.
On expectations from the upcoming Union Budget, Raman said the government does not have enough resources to meet its plans for public spending. "So lead indicators (from the budget) may be some slippages in fiscal in the larger in interest of economic growth, the financial responsibility mandate that they cast upon themselves can get a little more flexible. The other will be how much money they will borrow."
The management said it would maintain its order inflow, revenue and net profit guidance of 11%, 10% and 16% respectively for this fiscal.