Larsen & Toubro diversified Share

Larsen & Toubro Ltd (updated - 24 Jan 2012)
Larsen & Toubro (L&T) surprised the Street with its performance in the quarter to December, exceeding expectations, especially after the muted performance during the first half of the year. While on-track project execution drove the company’s sales by nearly 23% y-o-y, a healthy growth in treasury income and income earned as dividend from subsidiaries and associates boosted the company’s profit after tax by about similar percentage point’s y-o-y.

The company’s Q3 results succeeded in drawing attention on all fronts - revenues, profits and also healthy growth in order inflows. It was however the 28% y-o-y growth in order inflows that did surprise many, especially when the growth guidance of order inflows for the year was revised from 15% to 5% just last quarter.

The company reported an order inflow of nearly Rs 17,000 crore during the quarter, taking its total order wins during the nine months of the current fiscal to Rs 49,415 crore. Given its guidance for FY12, it needs to secure a total of about Rs 84,000-crore worth of orders during the year. The big question is whether L&T will succeed in securing nearly Rs 35,000 crore, or 41%, of its targeted order growth in Q4 alone? Going by past data, the fourth quarter is usually the best quarter in terms of performance for almost all companies in engineering and capital goods segments and L&T is no exception. The company has in the past generated nearly 30-38% of its order inflows in the fourth quarter. This time, however, macro-economic conditions are more challenging than in the past.

Another concern is declining operating margins. At 9.6%, the company’s EBITDA margins for the quarter have been lowest since the March 2010 quarter. The management has cited forex MTM provisioning as one of the reasons for the squeeze in EBITDA margins in the current quarter. However, the fact that margin have been on a declining spree for nearly eight quarters now do raise concerns of cost overruns and pricing pressures. The management has maintained its stance that a 75-125-bps dip in the EBITDA margins for the year could be a worst-case scenario.
Source - Economic Times

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