Mumbai: Larsen and Toubro Ltd (L&T), India’s largest engineering and construction company, on Friday reported a fiscal first-quarter profit that fell short of Street expectations, and cautioned that the investment climate still remains tepid.
Consolidated net profit in the quarter ended 30 June rose to Rs.609.60 crore from Rs.419 crore a year earlier as finance costs fell 13.3% and order inflows grew 14%, said L&T, a corporate proxy for the broader economy.
The profit fell short of estimates. A poll of 15 analysts by Bloomberg had forecast a net profit of Rs.791.30 crore.
Consolidated revenue in the quarter rose 9.1% from a year earlier to Rs.21,873.8 crore. L&T said it has restated the numbers for the year-ago period in accordance with the new Indian Accounting Standards.
On Friday, L&T shares ended at Rs.1,558 on BSE, down 1.2% from their previous close, while the benchmark Sensex fell 0.56% to 28,051.86 points.
L&T’s earnings in recent years have been crimped by a slowdown in the investment cycle as over-extended corporate entities struggle to repay debt, putting expansion plans on hold. Investment demand growth in India has languished at sub-5% levels for the past four financial years.
A rebound in the investment cycle is crucial to sustain economic growth, L&T said.
“The investment climate in India is yet to gather pace, particularly in the private sector. High corporate debt levels, balance sheet challenges of banks, weak industrial and rural demand and sluggish exports are posing hurdles to the investment momentum,” the company said in a statement.
In the June quarter, the company won fresh orders worth Rs.29,702 crore, up 14%. International orders amounted to Rs.13,211 crore, making up 44% of total order inflow, the company said. It won major orders from the infrastructure and hydrocarbon sectors.
L&T’s consolidated order book stood at Rs.2.57 trillion at the end of the quarter, up 8% from a year ago. Its international order book made up 29% of the total.
L&T on Friday reaffirmed its full-year fiscal 2017 order inflow growth of 15% and revenue growth of between 12% and 15%. For the year to 31 March, analysts expect L&T’s order inflow growth to be 20% or more.
“The first quarter order inflow was good mainly due to the hydrocarbon segment, where they have received a few large orders. But the overall infrastructure and high-end machinery segments are both struggling in the domestic market. The management is still very cautious,” said Anubhav Gupta, an analyst at Maybank Kim Eng Securities.
L&T’s domestic order inflow fell about 9.7% as infrastructure orders were deferred, squashing hopes of a sharp recovery in investment demand. It now expects these orders to come by in the second and third quarter of this fiscal year.
Revenue from infrastructure, its largest business, rose 9.2% to Rs.9,287.54 crore. Revenue from the power business rose about 59.7% to Rs.1,722.66 crore. Revenue from heavy engineering, financial services and developmental projects rose 13.9%, 17.34%, and 21.5%, respectively. Hydrocarbon business revenue fell 0.4% and information technology and technology services revenue rose 15%.
Government-led capital expenditure holds the key to accelerating India’s growth engine, said the company. Good monsoon rainfall and pay revisions for government employees will spur household demand.
“The intent of the government to pursue economic reforms is visible through passage of bankruptcy code, as well as efforts to build consensus on GST (goods and services tax) bill and attract foreign investments to make India a hi-tech manufacturing hub,” it said.
The development of smart cities, the government’s focus on building robust infrastructure and pushing defence manufacturing and renewable energy bode well for the company, L&T said.
“On the international front, the company will continue to target select prospects in the core infrastructure and oil and gas sectors in the Middle East, Africa and other neighbouring countries,” said the company statement.
As part of a five-year plan, L&T expects to clock a compound annual growth rate of 12-15% and expand margins by 100-120 basis points through fiscal 2021. One basis point is one-hundredth of a percentage point.
This year, it wants to reduce working capital to 18% of revenue from 24% in fiscal 2016.
“We look at the next five years with a lot of enthusiasm and hope. And we do believe that we have the means to stay profitable through this period… We will stay focused on construction and engineering, which is the core of our business, and specialized high-tech manufacturing and, key services businesses,” said R. Shankar Raman, chief financial officer of L&T.