Profit margins to improve, as execution improves in H2, says L&T CFO
- L&T has reported a 45% surge in its fiscal second quarter consolidated net profit to ₹3,223 crore from ₹2,229 crore a year ago, attributed to enhanced order book execution
New Delhi: Larsen & Toubro expects the profit margins to improve further in the second half of the current fiscal as the infrastructure major starts to finish and deliver projects that have been in the works since the pandemic, chief financial officer R. Shankar Raman told Mint in an interview.
“It (profit margins) will improve progressively quarter on quarter between quarter one and quarter two. It has improved by 30 basis points between the first two quarters. We expect it to improve by quarter three to quarter four. I think as the legacy jobs sort of get completed, the shadow of cost overruns because of the covid disruption etc. will disappear,” Raman said.
He expects margins to normalise by the next fiscal, which starts April next year.
“Since our jobs are executed over three, four years, it takes that long for either the gain to seep in or the pain to go away. So, quarter two was better than quarter one, quarter three is expected to be better than quarter two. Quarter four is expected to be better than quarter three,” he said.
Explaining the reasons, he said that these projects were delayed due to the pandemic and there is a provision for compensating for the rise in extra cost but that will happen only after the projects are delivered.
L&T, on Tuesday, reported a 45% rise in its consolidated net profit during the second quarter ending September (Q2FY24) to ₹3,223 crore from ₹2,229 crore in the corresponding quarter year-ago on the back of improved execution of the order book.
The company said it reported revenue from operations of ₹51,024 crore in the Q2FY24, a rise of 19% over the same period last year.
Raman also said there will be a jump in project execution, too, as the government will push for project completion before the elections.
“The projects that are due for completion will be pushed again. So, between now and January, February, we should see some accelerated execution,” he said adding that the value of project completion would be higher than the first half of this fiscal and could be over ₹60,000 crore.
On the conflict in the Middle East, he said that none of their supply chain is directly in the conflict zone and neither is there a possibility of that happening but the company is mindful of the situation.
“We do expect the inflation starting from the oil prices, energy prices and associated things like you know shipping rates, insurance premium etcetera... we expect the inflationary conditions to persist for some more time. And to that extent, I think we need to be careful when we execute projects that these costs do not bite. Fortunately, the cost that I am citing are those which are not substantial costs but costs. We need to be mindful... So, I will not say that there is no worry at all,” Raman added.
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First Published:2 Nov 2023, 12:24 AM IST
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