Bogged down by poor investment momentum, high inflation and deferment in decision-making, Larsen & Toubro posted a four per cent rise in net profit at Rs 798 crore for the quarter-ended September 30, 2011, as against Rs 765 crore logged in the same period last year.
Net sales were up 20 per cent at Rs 11,245 crore (Rs 9,422 crore). Order inflow was down 21 per cent at Rs 16,096 crore (Rs 20,466 crore). The order book was 23 per cent up at Rs 1,42,185 crore (Rs 1,15,393 crore).
Mr R. Shankar Raman, Chief Financial Officer, felt that interest rates were close to the peak and another 25 bps could not be ruled out as a policy intervention. “Six months from now the interest rates should start coming down,” he said.
Fewer projects
The slowdown and deferment in decision making have led to less number of projects on the anvil. Consequently, capacity utilisation had become the driver in bidding. When the economy was robust, the difference between the highest and the lowest bids was in the range of 10 per cent, now unreasonable bids are submitted, he said.
Guidance
Referring to the overall guidance of 15 per cent in order inflow, he said if things did not improve it could come down to five per cent. On revenues, he said the company should be able to maintain its guidance of 25 per cent on the back of its execution capabilities.
On margins, he said the vulnerability could range between 0.75 to 1.5 per cent, if the situation did not improve. EBITDA margin shed 20 bps y-o-y to 10.4 per cent.
Outlook
The current slowdown in investment momentum witnessed in almost all sectors of the economy, is constraining growth opportunities. Intensifying competition, high inflation, elevated interest rates, volatile financial markets and delayed policy intervention are posing considerable challenge for the decision-makers.
Irrational pricing offered in the market place for the limited pie of opportunity, is yet another factor to reckon in selection of remunerative projects to participate in.
In the medium term, the company sees itself in a strong position to maintain its revenue growth trajectory and stay prepared to benefit from opportunities when they materialise.