New orders for Larsen & Toubro grew at a strong 32 per cent in January-March 2013, rounding off a year of healthy order flows. For the 2012-13 fiscal, order inflow was up 25 per cent. That’s a good turnaround given that L&T saw a 12 per cent dip in order wins in the previous fiscal.
Revenues were up 10 per cent for the March 2013 quarter, while operating and net profits both shrank by two and seven per cent respectively. This was viewed with much disappointment by the markets. But infrastructure companies tend to have lumpy revenues and earnings, which change according to project inflow and execution. A single quarter’s blip is, therefore, not a cause for concern.
Sound order book
Fresh orders of Rs 29,929 crore for the March 2013 quarter pushed L&T’s total order book to Rs 1,53,604 crore. Segments driving this inflow were infrastructure, power transmission and distribution in domestic markets, and orders from overseas.
In the international space, orders tended towards transportation projects such as roads and railways, where L&T has built up an impressive record. It also did well with order wins in the emerging hydrocarbons segment. An international presence has helped L&T boost its order book. For instance, the international book accounted for 13 per cent of order inflows in 2011-12, when domestic projects of good quality weren’t forthcoming.
For L&T, opportunities for new orders remain in infrastructure, power transmission and distribution, and renewable and hydel power sectors. With hydrocarbons showing good promise, the company plans to transfer this segment to a wholly-owned subsidiary. Prospects in sectors such as power generation, which began revenue contribution for L&T only a couple years ago, and capital goods remain gloomy.
Costs up
In the wake of L&T’s heavy addition to its workforce, especially as it builds on its international presence, staff costs for the company were up 16 per cent over the year ago.
L&T has also been adopting a policy of subcontracting a significant proportion of its projects. While this helps speed up execution, it doesn’t save on costs. Construction costs as a proportion of sales inched up to 73 per cent in the March 2013 quarter against the 71 per cent in the year ago. As a result, operating profits dipped two per cent in the March 2013 quarter over the comparable 2012 quarter. Operating margins too shed 1.6 percentage points to land at 13.7 per cent.
Meanwhile, interest costs doubled in the March 2013 quarter, primarily due to a low base in the year ago period. Taken on a sequential basis over the past four quarters, the rise in interest outgo has been gradual.