Larsen and Toubro (L&T) net profit up 5%, fresh order intake highest ever

Larsen and Toubro (L&T) reported its highest ever fresh order intake in a quarter, which jumped 76% year-on-year to Rs 73,233 crore, while the order book stood at a historic high of Rs 3.13 lakh crore for the October-December 2020 period. The performance was backed by the company winning some big marquee orders during the quarter in the infrastructure segment. Revenues and profit after tax also recovered sharply compared to the steep declines witnessed in the first two quarters of the financial year.

L&T reported a 5% year-on-year increase in the company’s net profit for the third quarter to Rs 2,467 crore, which was much above analyst estimates of Rs 1,902 crore. Revenues during the quarter, however, were still slightly lower as Covid-19 restrictions continued to have an impact on project site execution and Hyderabad metro operations. On a year-on-year basis, revenues declined 2% to Rs 35,596 crore, missing analyst expectations of Rs 36,612 crore. However, revenue was up a good 15% on a sequential basis.

Ebitda (earnings before interest, tax, depreciation and amortisation) increased 4.3% y-o-y to Rs 4,280 crore, while the Ebitda margins were up 60 basis points y-o-y to 12%.

New orders included large wins in High Speed Rail Corridor, one of the largest orders in EPC in hydrocarbon sector during the quarter, and also some of the largest equipment supplies order in the construction and mining business. International orders during the quarter constituted 14% of the total order inflow, with 86% of orders coming in from domestic market.

The heavy engineering and infrastructure major said that it expected the order inflow momentum to continue or be even better in the fourth quarter as it continued to see good order prospects. The confidence comes from the thrust that the government is giving on key sectors likes metro, high speed corridor, roads, water solutions, renewable energy, power transmission and distribution and new prospects like bio-fuel and storage. However, the company has refrained from giving a guidance for the year.

SN Subrahmanyan, CEO and managing director, L&T, said that the company is hopeful that the fourth quarter will be the same or even better quarter. “Both India and Middle East markets are tough. In India lot depends on the kind of push the government is going to give to infrastructure, in Middle East quite a bit depends on oil prices but at the same time they want to create jobs and keep population engaged, so we are hopeful that we will be able to keep the momentum that we have at the moment.”

Terming the quarter as a “blockbuster quarter”, R Shankar Raman, chief financial officer, L&T said, “We saw remarkable improvement in business sentiments during the quarter at an industry level. This was on the basis of recovering economy from the lows of contraction of 28% and 24%, which has now come to a more single digit contraction, with lot of work being put in by lot of constituents. I would give this quarter gone by as a quarter of turnaround for the industry as a whole from the woes of the pandemic.”

He said there has been a rise in demand across the board, which could be attributed to pent up demand or even incremental demand. “Statistics about the increase in demand for energy and energy consumption also bears the fact that there is turnaround in the economic and industrial activity of the country,” he said. Strong collections for the company continued through to quarter three. This has resulted in the reduction in working capital in excess of Rs 1,000 crore during the quarter, he said.

However, with the uncertainty around the pandemic not over yet, Raman said, “Time is not at right to drop the guard but to see how we could responsibly take the momentum that we have gained in Q3 forward.” He added that headwinds around the execution challenges continue to remain, while lot of Covid protocols are cutting into productivity. “Supply chain is just about coming back to normalcy, however, challenges with partners remain. So, we also need to tread with caution in making sure that our commitments to the customers are backed by deliveries of the supply chain partners. The pandemic has also affected the liquidity of the clients so we had to tread carefully regarding execution until we were sure about the liquidity of the client.”

In terms of the segments, infrastructure segment secured orders of Rs 45,574 crore, during the quarter ended December 31, 2020, higher by 80% on y-o-y basis, with receipt of two marquee orders of High Speed Rail. The Ebitda margin of the segment stood at 6.2%, 10 basis points up annually. The power segment did not secure any major order during the quarter. The segment Ebitda margin was at 2%, lower compared to 3.4% in the corresponding quarter. Heavy engineering segment’s Ebitda margin came in at 20% a decline over the corresponding quarter of the previous year of 23.5%, on account of changes in job mix. The hydrocarbon segment secured orders valued at Rs 12,820 crore during the quarter supported by receipt of some large value domestic orders in the petrochemicals space.