Tender Delays: L&T’s Q1 profit misses estimates

It is very clear that all attempts is being made to push out projects,” he said.

The April-June quarter earnings of the engineering major, Larsen and Toubro (L&T) was kind of a mixed bag, mainly due to the slowing down of the tendering activity by the central and state governments due to the second wave of Covid-19. As a result, L&T’s net profit and operating income missed Bloomberg consensus estimates. Revenues, however, came in line with estimates.

The company reported a near four-fold year-on-year rise in its consolidated net profit to Rs 1,174 crore, which was below analyst estimates of Rs 1,503.43 crore. Healthy execution of projects led to a 38% y-o-y increase in the company’s consolidated revenue from operations to Rs 29,335 crore. However, project progress was impacted with regional lockdowns, shortage of industrial oxygen and supply chain disruptions.

Also, 38% of the total revenues came from international business which stood at Rs 11,186 crore.

The consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) for the first quarter ended June 30, 2021, nearly doubled y-o-y to Rs 3,171.49 crore, while the Ebitda margins increased a good 320 basis points to 10.8% with improving execution. The company has maintained its FY22 guidance of up to a low-mid teens growth in orders and revenues, and stable margins.

Speaking to media persons in a post-earnings conference call, R Shankar Raman, chief financial officer, L&T said, “The quantum of tenders that were deferred from quarter one to subsequent quarters have been almost to the order of 40% of the level that was expected, as we got into the year”. Delayed decision-making due to unavailability of government officers with the rise in Covid-19 infections during April and May pushed back the tendering momentum, the company management said.

The results for the two quarters will not be strictly comparable as Covid-19 led disruptions resulting from nationwide lockdown had severely impacted company’s performance in the first quarter of last year. L&T’s net profit was decimated to `303 crore, suffering a sharp y-o-y decline of 79% for the April-June 2020 quarter. “In a way, Q1 has been a start-stop-start quarter.

It has been more like rain interrupted outdoor sport. The company has done well to retain its focus and purpose and delivered a satisfactory performance,” he said.

Raman said that though the economy is picking up its growth momentum, the country was caught off-guards by the second wave of the pandemic. “The second wave of the pandemic was much more brief compared to the first wave, but far more intense. The lack of preparedness of the country, as well as lack of medical infrastructure did not help the cause either. Ultimately, there was a significant disruption as the new quarter of the new financial year started,” he said.

The heavy engineering and infrastructure major bagged orders worth Rs 26,557 crore in the quarter ended June, registering a growth of 12.6% over corresponding period of the previous year. During the quarter, orders were received in various segments like metros, rural water supply, minerals and metal, residential, power transmission and distribution, power and hydrocarbon offshore sectors. International orders at Rs 9,045 crore during the quarter comprised 34% of the total order inflow. The consolidated order book of the group stood at Rs 3.24 lakh crore as on June 30, 2021, with international orders at 20% of the total order book.

According to SN Subrahmanyan, CEO and managing director L&T, while tendering is showing signs of improvement, direct orders from central and state government is expected to slow down, as central and state governments are also caught up with deficit, spending on the pandemic and other social issues. “Multi-lateral funded projects and public sector spending will speed up. I see private sector has got down much of the leverages that they had in terms of debt, so we are seeing some amount of private sector spending in minerals and metals, buildings and data centres, so we should be able to balance it out in the short run,” he said.

He added that the “greatest opportunity” in front of the government is to create jobs. “You cannot continue with MNREGA schemes and other forms of direct benefit transfers beyond a time, which is free money being given with very little work to be done. Therefore, it is imperative that projects have to get back. I think most central and state and public sector units are seized of this opportunity. It is very clear that all attempts is being made to push out projects,” he said.