L&T: Building on a healthy order book

Larsen & Toubro closed the September quarter with a healthy revenue growth of 11 per cent, maintaining the pace at which it has been growing over the last three quarters. But even as L&T shelled out more on its employees and operations, it saved on interest costs. Lower depreciation outgo, too, helped net profit increase 7 per cent for the July-September period.

L&T’s ability to keep orders coming in sets it apart from its infrastructure peers. The September quarter saw order inflow surge a good 17 per cent, taking the total consolidated order book to ₹2.14 lakh crore.

The infrastructure segment has been the company’s backbone, accounting for almost half the inflows in the September quarter. The segment has also posted the strongest revenue growth of 23 per cent, compensating for the poor performance of almost every other segment.

Hydrocarbons, with which L&T faced trouble in the June quarter when revenues dropped 49 per cent, clocked another quarter of falling revenue, this time by 24 per cent. Challenging conditions in international markets hampered execution. Time and cost over-runs, changing project requirements and project deferment also played a role. Still, two quarters is too short a time period to judge a segment’s performance, and one which is relatively nascent. The company is set to iron out niggles over the next two to three quarters.

In the power, metallurgical, and heavy engineering segment as well, L&T has been struggling for several quarters now. But with an economic turnaround, the engineering segment should gradually see orders coming in. Clarity on mining may help the metallurgical segment, too.

Construction and material costs ate into profit margins, accounting for 37 per cent of sales in the September quarter, compared to the 35 per cent a year ago. The main infrastructure sector also saw profits dip as lower-margin projects were taken on and some claims were settled.

Consolidated operating profit dropped 7 per cent in the July-September period year-on-year. Profit margin dipped to 11 per cent against 13.1 per cent a year earlier. But interest costs dropped a good 11 per cent while depreciation dipped 7 per cent. As a result, net profit rose 7 per cent for the quarter.