The Hindu Business Line : Larson & Toubro: A good long-term option

THE fixed deposit programme of the diversified major Larsen & Toubro is a good investment option. The company's fundamentals are very strong and the company has good growth prospects. Investors, who are willing to lock-in their funds for a longer period, can consider this option. However, investors who prefer shorter tenure options can avoid this programme.

Schemes and features

Larsen & Toubro offer both cumulative and non-cumulative fixed deposit schemes. Deposits are accepted only for three-year tenure and the interest rate for the both schemes stand at 8 per cent. Under the non-cumulative scheme, the interest is payable at half-yearly intervals.

The interest for the cumulative scheme is compounded at quarterly intervals and the effective yield for the same stands at 8.94 per cent. The minimum deposit for both the schemes is Rs 10,000. Further details can be obtained from the registered office: L&T House, Narottam Morarjee Marg, Ballard Estate, Mumbai - 1 or the Fixed deposit section, Bakthawar, Ground Floor, Nariman Point, Mumbai - 21.

Business prospects

Larsen & Toubro, the engineering major, has four major divisions, which includes construction, cement and electrical and diversified products. The company also has its presence in information technology. The construction division contributes around 56 per cent of the company's revenues, while the cement division contributes around 30 per cent of the revenue. The emphasis given to the infrastructure in the Budget may aid the company's growth prospects as its expertise lies in executing large industrial and infrastructure projects. However, this may not necessarily lead to a likely growth in earnings due to the increasing competition witnessed in the industry. The uncertainty regarding restructuring of the company's business, the pressures on operating margins and not-so-firm cement prices will also be a cause for concern.

Financials

Despite the decline of operating profits in the construction segment, which is a major contributor of revenues, the company has managed to post good financial results. For the nine-month period ending December 2002, the net sales rose by 21.4 per cent to Rs 6,535.9 crore from the corresponding prior period. The net profit was also up by 4.6 per cent to Rs 167.5 crore.

The net profit margin for the period, however, has come down to 2.6 per cent from 3 per cent. The operating profit margin has also come down from 8.5 per cent to 5.4 per cent.

This is primarily due to the drop in the profits in the construction division. The debt-equity ratio for the period ending March 2002 stands at 1.07, while the operating profit is at 1.99 times of the interest expenses.

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