L&T's big targets rely on galloping economy: Analysts

Larsen & Toubro’s (L&T’s) target of doubling its revenue in the next five years would depend on how the economy grew over the period, analysts said.

“There is not much L&T can do internally, it will depend on how the macro factors work out,” said Santosh Yellapu, analyst with Angel Broking.

Targets shared at the company’s annual general meeting last month require L&T to generate Rs 2 lakh crore revenue and order inflows of over Rs 2.5 lakh crore a year by 2021. L&T’s order inflows were Rs 1.36 lakh crore in 2015-2016 and net revenue from operations Rs 1.02 lakh crore.

The company agrees the targets are ambitious and assume economic factors will play out favourably. “The optimism over our country’s potential to grow contributed to the positive outlook,” an L&T spokesperson said.

Scepticism over the targets also stems from L&T’s missed guidance in the last three financial years. Since 2013-14, L&T has not met its guidance issued at the beginning of the financial year at least on one of the three parameters: revenue, order inflows and margins.

In 2013-2014, the company began the financial year with a 20 per cent growth forecast for order inflows and later revised it to 15 per cent, which it met.

“Missed guidance should not prevent the company from planning for its future. Our confidence is based on our assessment of the emerging opportunities, our capabilities and strong financial standing,” the L&T spokesperson said.

The spokesperson pointed out along with infrastructure, L&T saw long-term potential in manufacturing, defence, nuclear power, smart cities, financial services, information technology, engineering services, water treatment and management, and transportation systems.

“There may be opportunities, but these will not all translate in one go. For instance, there could be defence orders, but these take a long time to finalise and are one-offs. On the infrastructure side too, things may move, but not very fast,” said an analyst with a brokerage firm who did not wish to be identified.

L&T expects defence to form a significant portion of the company’s order book over five years.

“For L&T to be able to meet these targets all verticals have to do well at the same time,” Yellapu added.

The period when states and the nation go to polls will also play a major role. Election years see increases in social spending that could affect infrastructure.

“The current year and the next will be crucial for the government and a lot will depend on these two years for L&T in terms of order inflows. Once the election period starts, government focus will shift,” said another analyst who did not wish to be identified.

L&T’s overseas portfolio will also be a contributor to the targets set. The company spokesperson said 70 per cent of L&T’s business would be from India and 25-30 per cent would be international orders.

“The overseas orders are mainly from the Middle East. If crude oil prices remain under pressure, these orders may not work out,” an analyst said.