Its large size and diversified business profile notwithstanding, engineering conglomerate Larsen & Toubro's September quarter performance only reinforces the slowdown in the sector.

Issues such as profit margin pressures, dip in order inflows as a result of order deferrals and pricing pressures that beleaguered other smaller engineering and capital goods companies , affected L&T as well.

However, its on-track execution record is what perhaps sets it apart from the rest of the crowd. The company expanded sales by 19 per cent in the September quarter over a year ago, while net profits increased by 15 per cent.

This growth is creditable, coming as it does without too much compromise on profit margins. EBITDA margins declined just 20 basis points to 10.4 per cent over a year ago, moderating commodity prices perhaps curtailing any sharp fall.

This said, it may be tough for the company to go back to the close to 13-per cent EBITDA margins of FY-11 as its mainstay engineering and construction segment has seen a steady slide in profit margins since the beginning of this fiscal. The company too has guided for a 75-125 basis point dip in EBITDA margins for FY-12.

Slowing order flows

While L&T's order book of Rs 1,42,000 crore (three times the trailing 12-month sales) may seemingly belie fears about the outlook, a 21 per cent dip in order inflows for this quarter over a year-ago period, showcases slower investment decisions in the manufacturing and infrastructure space. With this, L&T has revised its order inflow guidance for the fiscal to 5 per cent from 15 per cent earlier. This too is a challenge as it has to clock close to 20 per cent for the rest of the year.

Interestingly, the order inflow position could have been worse but for the sudden surge in overseas orders from West Asia in the oil and gas and power transmission sectors. Export orders accounted for 25 per cent of the inflows in the September quarter as against an average 10-12 per cent historically.

However, given the economic slowdown in those geographies, it is doubtful whether these projects will fetch the lucrative margins that they normally do.

L&T's unlisted subsidiary L&T Infotech's robust growth proved to be a silver lining. The company witnessed a 33 per cent growth in sales and 28 per cent growth in net profits aided by favourable foreign exchange movement and tax benefits on STPI.

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