Larsen & Toubro beat street estimate in the second quarter of 2018-19 with robust order inflow and a strong pick up in execution, but the company left its growth guidance for the fiscal unchanged, cautioning that the pick up may not be the norm and the environment continues to be challenging.
The engineering major reported consolidated net profit of Rs 2,230 crore in the quarter ended September, up 23% on year, driven by better execution and an exceptional gain. Revenue rose 21% year-on-year in the quarter to Rs 32,081 crore, driven by infrastructure, hydrocarbon, realty and services business. A Bloomberg poll had pegged net profit at Rs 1,671.6 crore and revenue at Rs 29,247 crore.
“This result is significant in the context of the challenging environment that the capital goods industry is operating in with macro headwinds, oil prices, liquidity crunch and volatility in commodity, stock market, and currency market. We have been able to report satisfactory results braving these headwinds,” Chief Financial Officer R Shankar Raman told reporters Wednesday.
The companys order inflow in the July-September quarter reported a robust 46% growth at Rs 41,921 crore, taking its orderbook to Rs 281,166 crore. L&T typically sees a pick up in order in the second half of fiscal given the nature of the industry but this year in the first half itself it has seen a pick up, with orders inflow up 42% from the first half of FY18. Despite the strong performance in the first half, the company continues to be cautious and has left its growth forecast for FY19 unchanged at 10-12% for order inflow and 12-15% for revenue.
“There have been headwinds in order execution and we have had to often faced impediments in executing them. Not that all the impediments are gone, and not that this is the new norm, but the fact is that in the last 3-6 months we have been able to make sure to find ways to make the projects we are working on to move forward,” the CFO said. He said that given the funding challenges, liquidity crunch and the government potentially getting “distracted” by other issues, it would be tough to predict how the next few quarters would pan out.
L&T reported an exceptional gain of Rs 295 crore for the quarter that boosted its bottomline as it wrote back some provisions made for dues to a customer after a favourable verdict by NCLT.
Orders inflows to the company was mainly driven by domestic orders from government and its agencies as private sector continued to be on the sidelines and orders from its key international market in the Middle East declined.
“There has been a tough phase of 3-4 years preceding this year so now the first focus of the private sector would be to get the capacity better utilised before they create new capacity,” Shankar Raman said.