L&T to miss full-year order inflow forecast in FY16: Analysts

Mumbai: Larsen and Toubro Ltd (L&T), India’s biggest engineering and construction company, is expected to miss its revised forecast of a 5-7% growth in order inflows for the year ended 31 March, when the company reports its fourth quarter results on Wednesday, analysts said.

L&T, which is often referred to as a proxy for the broader economy and has interests in finance and information technology sectors, has been hurt by stalled industrial projects and a private investment cycle that’s yet to take off, coupled with slower growth in key overseas markets.

The company bagged Rs.93,500 crore worth of orders in the first nine months of fiscal 2016 and needed new orders worth Rs.70,000 crore in the fourth quarter to meet its growth forecast, according to Emkay Global analysts analysts Nitin Arora and Kushan Parikh.

They do not expect L&T to meet this forecast.

An analyst, who is not authorized to talk to reporters, estimates L&T to have received new orders worth Rs.50,000 crore in the fourth quarter ended 31 March.

“I expect the company to report 10-12% revenue growth, which is on the lower side of their previous guidance of 10-15% growth,” said Angel Broking analyst Yellapu Santosh. “Street will be looking forward to order inflow guidance for FY17, where the company will benefit from improvement in roads, defence and railways orders.”

L&T on Wednesday will also likely give its revenue and order growth forecast for fiscal 2017. Five analysts Mint spoke with expect L&T to forecast between 10-15% growth in both revenue and order intake for fiscal 2017.

According to Maybank Kim Eng Securities analyst Anubhav Gupta, L&T is likely to report a 7% decline in fourth quarter consolidated profit on Wednesday due to slowing execution, pressure on Ebitda (earnings before interest, taxes, depreciation and amortization) margins and high interest costs.

Sixteen analysts polled by Bloomberg expect the company to report fourth quarter consolidated net profit of Rs.1,863.70 crore while 18 analysts expect the company to report consolidated net sales of Rs.30,248.90 crore. L&T had reported net profit of Rs.2,069.64 crore and net sales of Rs.28,022.62 crore in the fourth quarter of fiscal 2015.

L&T’s net profit and operating margin has been impacted by its shrinking capital goods order book as well as rising cost of underutilised assets, brokerage Integrated Enterprises (India) Ltd said in note to clients this week. Its heavy investments in its subsidiaries have also not gone down well with the markets.

“A long-standing sore point has been L&T’s massive investments in subsidiaries—jumped to Rs.20,000 crore in past 10 years from Rs.1,300 crore, constituting 40% of standalone capital employed. Moreover, delay in decisions and execution at project level, high interest cost and tight liquidity had ballooned the company’s working capital days to 110 from 30 in FY11,” wrote Edelweiss Capital analysts Debashish Mazumdar and Ankush Mahajan in their 22 April report.

They however expect L&T’s working capital needs to ease over the next few quarters spurred by improvement in execution. “Our deep dive analysis indicates that, going forward, the company’s investments in subsidiaries and developmental projects will be minuscule as the investment phase has been completed.”

L&T shares have underperformed the broader markets in recent months.

Up to Monday’s close, L&T’s shares had fallen 24.84% in the past 12 months. The benchmark Sensex fell by a lesser 9.75%.

In November, L&T had slashed its full-year forecast for both order intake and revenue growth in the year to March, because of a subdued domestic markets and a slowdown in the Middle East. This had led to several brokerages slashing their target price on the stock.