L&T Q1 profit rises 46% to Rs893 crore, but misses estimates

Larsen and Toubro Ltd (L&T), the conglomerate that often mirrors the performance of the broader economy, on Friday posted a 46% increase in consolidated net profit for the June quarter as lower tax expenses and reduced losses at subsidiaries helped counter a decline in margins and order inflows.

L&T, which has businesses in engineering and construction, power, finance, information technology (IT) and realty, reported a group net profit of Rs893 crore for the quarter, up from Rs610 crore a year earlier. Gross revenue rose 10% year-on-year to Rs23,990 crore.

L&T still missed analysts’ earnings estimates. A Bloomberg poll of nine analysts had estimated L&T’s consolidated net profit at Rs928.40 crore; a poll of 10 brokers estimated sales at Rs23,850.10 crore.

New orders in the June quarter fell to the lowest in three years, reflecting stagnant private investment demand in India and the Middle East, a key market. L&T won orders worth Rs26,352 crore in the quarter, down 11% from a year ago. Domestic orders grew 12%, while international orders fell 40%, reflecting slower infrastructure spending in the Middle East owing to low crude oil prices.

L&T’s management said the group was on track to meeting its order inflow growth forecast of 12-14% for the current fiscal year, betting on increased government spending.

The government has had to invest in the social sector in the first three years of its term, but as the country gets closer to 2019, it will likely spend heavily on development projects, said S.N. Subrahmanyan, who took charge as L&T chief executive officer earlier this month.

Private sector investments continue to remain muted, he added, citing examples of sectors such as power and real estate that are grappling with issues ranging from overcapacity and falling rates to a major slowdown in fresh job creation in the IT sector.

Data from the Centre for Monitoring the Indian Economy shows that Indian firms announced Rs1.34 trillion worth of new projects in the June quarter, the lowest since December 2015. The growth in gross fixed capital formation in the economy, a measure of investment demand, was 2.38% in fiscal 2016-17.

Still, “the atmosphere is slightly more positive than what it was”, said Subrahmanyam, highlighting a 26% increase in order inflows for L&T’s key infrastructure segment.

While the infrastructure segment reported a 16% rise in revenue, its earnings before interest and taxes (Ebit) margin—a measure of operating profitability—contracted 1.1 percentage points because of delays in project execution. Overall, L&T’s operating margin shrank by 10 basis points to 8.6% in the quarter. A basis point is one-hundredth of a percentage point.

The company, however, said margins will improve by 25 basis points this fiscal year as newer orders have been bid at better prices.

At the end of June, L&T’s consolidated order book was worth about Rs2.63 trillion, up 2% from a year ago, with international orders making up 26% of the total. The company kept its revenue growth guidance for the year unchanged, saying it “is optimistic of its growth prospects in the medium term as the economic outlook improves”.

On Friday, shares of L&T closed at Rs1,159.10 on BSE, down 2% from their previous close, while the benchmark Sensex fell 0.23% to 32,309.88 points. L&T announced its results after market hours.