L&T turns ₹536 crore profit in Q1, down 68%3 min read . Updated: 22 Jul 2020, 08:59 PM IST
The net profit was impacted mainly by lower revenue, credit provisions in the financial arm and under recovery of overheads
Engineering and infrastructure major Larsen and Toubro (L&T) surprised Dalal Street expectations by reporting a consolidated net profit of ₹536.88 crore in the June 2020 quarter, when the entire country came to a standstill in the world’s strictest covid-19 lockdown.
Despite the quarter effectively having only about 30 working days, L&T was able to book revenues of 21,260 crore and booked new orders worth ₹23,574 crore. The net profit was impacted mainly by lower revenue, credit provisions in the financial arm and under recovery of overheads.
The company, a bellwether for India’s manufacturing and construction sector, was expected to report a net loss of ₹467.8 crore in the quarter of FY21, according to a Bloomberg poll of 2 analysts and consolidated revenue of ₹20,678 crore according to 5 analysts polled.
However, the quarter’s numbers were far below those from a year ago, reflecting the weakening performance of India Inc during the pandemic. L&T’s gross revenue declined 28% year-on-year from ₹29,635 crore reported in Q1FY20, profit fell 68% from ₹1697 crore in the previous year while new orders registered a decline of 39% year-on-year. The consolidated order book of the group stood at ₹305,083 crore as at June 30, 2020, with international orders constituting 24% of the total.
The company’s management said that revenues and orders were impacted by nation-wide lockdown, which resulted in the halting of manufacturing and construction activities, non-availability of labour and disruptions to the supply chain ecosystem. All domestic orders are heavily skewed in favour of those coming from the government or public sector units as the private sector pauses all capital expenditure. The company said that only about 15% of new orders booked in the quarter were from the private sector.
“The company was able to make sure that order book remains stable," R Shankar Raman, Whole time director and CFO, L&T, said during a press briefing. “(The fall in) revenues reflects our inability to work at full force. Our interest costs have gone up because of additional borrowing that we undertook to add to our cash kitty, towards a rainy day. The earnings before interest, tax, depreciation and amortisation was ₹1620 crore, down 41% year-on-year on lower sales volume while profit margins fell to 7.6% this quarter versus 10.4% last year." Raman said the revenue ramp-up will be gradual and will take at least 2-3 more quarters before it returns to pre-covid levels.
SN Subrahmanyan, MD and CEO, said that the company is still hamstrung by low labour strength across its 950 work sites. “At the peak, in January, we had about 260,000 workers at our sites; that fell to 70,000 labourers in April and May. Now this is back up at 190,000 labourers. We are adding about 1500 workers to our sites every day and if this pace continues, we will be able to return to our pre-covid worker strength in the 45-60 days."
The infrastructure segment accounted for the bulk of new business during the quarter, bringing in orders of ₹11,349 crore, still lower by 32% compared to the corresponding quarter of the previous year. Major orders received included a large barrage project, rural water supply schemes, an expressway project and some international orders in power transmission and distribution. The defence engineering segment received orders of ₹140 crore during the quarter, lower by 47% over the corresponding quarter of the previous year with deferment of awards from Ministry of Defence.
IT & Technology Services segment achieved customer revenue of ₹6,028 crore during the quarter, registering a growth of 58% and pulling up overall group revenue during the quarter. The growth was led by consolidation of Mindtree and growth in L&T Infotech Group. The financial services segment recorded customer revenue of ₹3,284 crore during the quarter, a y-o-y decline of 5% which is symptomatic of the sectoral contraction of business in the shadow lending space. With this the loan book was marginally lower at ₹98,879 crore as compared with June'19 at ₹99,904 crore.
Given the uncertainty surrounding the pandemic and restrictions in the business operating environment for public safety, the company’s management declined to give a revenue guidance for the rest of the year. Shares of L&T closed down 1.8% on the BSE on Wednesday at ₹920.95 apiece.