A good quarter for L&T

Lower expenses and higher other incomes have sent Larsen & Toubro’s net profits for the January-March quarter vaulting 71 per cent. The infrastructure conglomerate ended the 2013-14 fiscal with a 25 per cent net profit growth. Sales (standalone, excluding hydrocarbons) were up 11 per cent for the March quarter over the year-ago period. The steady pace of sales growth indicates that project execution has held strong. The September and December 2013 quarters also had 10-11 per cent growth in sales.

Owing to one-off write-backs of provisions and a benign foreign exchange climate, especially with L&T’s sizeable overseas operations, administrative and other costs dropped 66 per cent. The cost head accounted for just 1 per cent of sales from the 6 per cent in the March 2013 quarter. While foreign exchange fluctuations could well remain sedate in the coming quarters, the drop in other expenses may not continue. Operating profit margin improved 2.7 percentage points to 14.4 per cent in the March quarter over the year ago. Extraordinary, one-time income of ₹484 crore, which mainly stemmed from L&T’s dilution of a 4.89 per cent stake in L&T Finance Holdings, plumped up net profits for the 2013-14 fiscal.

For the January-March period, fresh orders secured were down 4 per cent, both on account of slower awarding prior to elections and the gloom that was permeating the infrastructure sector. International buoyancy has held up the order inflow in the past year – international order flows at ₹30,752 crore was almost thrice the amount in the previous fiscal.

Orders won include those such as setting up substations in Qatar, gas-based power plants in Bangladesh, a metro project in Doha, and so on.

The domestic front may also pick up now – reforms in the power space, for instance, can revive the dying order pipeline. For L&T, the segment’s contribution to revenue has dropped to 9 per cent, from the 16 per cent in 2012-13. Pick-up in the mining segment can boost L&T’s metallurgical and handling segment, whose revenue shrank 9 per cent in the 2013-14 fiscal.