Exceptional gains of Rs 1,020 croreensured that Larsen & Toubro (L&T) trebled its net profits for the quarter ended June 2009 (over a year-ago numbers) despite the tepid growth in revenues. While the benefit of lower raw material costs is beginning to reflect in L&T’s profit margins, the company may be witnessing slower execution of projects. The pace of order inflows, too, suggests that the nascent signs of a revival in capex and infrastructure spending in the domestic and international arena, are yet to translate into orders for engineering conglomerates such as L&T.
L&T’s revenue, adjusted for the Ready Mix Concrete business held in 2008 and divested later, grew 11 per cent in the June quarter on a Y-o-Y basis. Operating profit margins jumped from 8.3 per cent a year ago to 11.2 per cent in the latest quarter, aided by lower cost of construction materials.
Sub-contracting charges nevertheless, continued to witness a sharp increase. Interest expense, remained unrelenting and almost doubled during the quarter. This expense is, however, still insignificant given that it is less than 1.5 per cent of the total revenue.
Net profits, excluding the gain from sale of long-term investment in UltraTech Cement grew 15 per cent to Rs 578 crore. The sale of stake in UltraTech would end any trace of L&T’s earlier stint in cement and also help the company focus on its core business.
Besides, the over Rs 1,000 crore proceeds may have come in at the right time to retire part of its debt of Rs 6,585 crore.
L&T’s engineering and construction has once again been the trigger for revenue and profit growth. E&C’s revenue grew at a healthy 18 per cent; electrical and electronics division witnessed flat sales growth while machinery and industrial products declined by a third compared with June 2008 quarter. The last-mentioned division’s lack of growth is an indication that a revival in capex spending is not yet visible.
L&T’s order book at Rs 71,650 crore has not grown at an expected pace. Order inflows for the quarter at Rs 9,571 crore, was 22 per cent lower than a year ago numbers. According to the management, delay in finalisation of several government projects as well as the slowdown in the overseas markets were the key reasons for the slowdown in order inflows. The company has nevertheless maintained its forecast of a 25 per cent growth in its orders book for FY-10. While such growth may have to be buttressed by fresh addition of infrastructure projects, power could be another key driver of revenue in the current fiscal.
This segment accounts for one-fourth of the current order book; there appears sufficient scope for fresh orders, given L&T’s successful qualification in domestic power equipment and EPC projects last fiscal.
L&T’s IT and finance subsidiaries too saw lacklustre performance with profits remaining flat. The nascent infrastructure finance division, however, witnessed a healthy 22 per cent net profit growth for the June quarter, albeit on a small base. While this subsidiary may not contribute significantly to the consolidated revenue in the near future, it could be a high-growth business segment for the company.
source:BL
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