L&T pins hopes on government initiatives for change in fortunes

Larsen & Toubro Ltd (L&T), a corporate proxy for the investment cycle in India, has seen its shares fall 34.64% since 1 April and its faltering performance has forced analysts to cut earnings forecasts for 2015-16 and 2016-17 by as much as 21%.

Yet, the company believes that it can get back on track.

“For both the country and company, the best days are ahead of us,” said A.M. Naik, group executive chairman, Larsen and Toubro Ltd (L&T).

And in an interview to Mint in Mumbai, the company’s chief financial officer and whole time director R. Shankar Raman listed five factors that could change L&T’s fortunes: a revival in defence manufacturing, more investments in nuclear power projects, the government’s smart cities initiative, a rebound in the infrastructure sector, and continued focus on productivity and capital efficiency.

he wish list makes it clear that L&T’s performance is closely linked to the government’s initiatives.

“L&T is well placed to meet most of India’s needs in critical sectors: infrastructure (roads, ports, airports, water, metro rail, freight corridors, etc.), smart cities, power (solar, thermal and nuclear), defence equipment, etc,” adds Naik, 74.

“The government has also clearly recognised that it will need to lead with public expenditure to stimulate economic growth.”

Stalled industrial projects and a private investment cycle that’s yet to take off, coupled with slower growth in key overseas markets have in recent years taken their toll on L&T, which has interests in businesses ranging from engineering and construction to finance and information technology.

For the quarter ended December, the company reported an Ebitda (earnings before interest, taxes, depreciation and amortization, a measure of operating profit) margin of 10.3% against 12.1% in the year-ago period.

Ebitda for the quarter was Rs.2,650 crore, against Rs.2,890 crore last year, an 8% decline.

L&T garnered fresh orders worth Rs.38,528 crore at the group level during the last quarter.

The international order inflow during the quarter, at Rs.11,115 crore, constituted 29% of the total order inflow. The bulk of the orders during the quarter were secured in the infrastructure segment.

The consolidated order book of the group stood at Rs.2.6 trillion as of 31 December, higher by 14% on a year-on-year basis, with international orders constituting 27% of the total.

Things could be better, admitted Raman.

“We are not down in the dumps,” said Raman. “But obviously, we could perform better.”

“If there is an uptick in the economy, L&T would be the biggest beneficiary of the same,” he added.

“The Prime Minister (Narendra Modi) has made significant structural changes that will bring more long-term efficiency and equity into the Indian economy. He has now set his mind on improving the ease of doing business; this will attract further investments,” says Naik.