L&T net up 13%, but flags slowing order book, policy issues

Engineering major Larsen & Toubro on Wednesday reported a 13 percent growth in September quarter net at Rs 2,527 crore, but flagged concerns over the economy where many projects have been stalling for years. The company had to rely on international projects for new orders in the face of troubles at home, it said and also expressed concerns over the geopolitical tensions in West Asia which contributes half of its overseas revenue.

The largest engineering, procurement and construction company, which depends across all sectors for its business, however, maintained its revenue and order book guidance for the remainder of the year-at 12 percent and a revenue guidance of 15 percent. Revenue from operations grew 15.15 percent to Rs 35,328 crore, while pretax profit grew 14 percent to Rs 4,020 crore, the company said.

The tottering economy has forced it to focus more on international operations, chief financial officer R Shankar Raman told reporters. Overseas operations now contribute 34 percent of the overall revenue, up by 1 percentage point from the year ago period, he said, adding there is a deeper change from an order book perspective.

Foreign orders grew 111 percent to Rs 16,700 crore during the quarter as against a marginal decline in domestic orders to Rs 31,600 crore, he said, adding their share in the order flow has increased to 34 percent now from 19.60 percent a year ago. Consolidated order book stands at Rs 3.03 lakh crore and will be requiring over two-and-a-half years to execute the same, chief executive SN Subrahmanyan said.

At a consolidated level, the company's debt stood at Rs 1.33 lakh crore as of September. "We are pursuing a robust order book," Raman said, giving an outlook on the crucial parameter.

From a profitability perspective, he said, maintaining operating margin at 11 percent "took a lot of effort", given the subdued climate, but added they could tide over the same thanks to reliance on digitisation. He also said the company is sticking to its target to increase its order book by up to 12 percent during the fiscal year, and also push up revenue by 15 percent.

The company appealed to the government to get stalled projects started, stating that it will help growth and create lakhs of jobs, where GDP expansion has slipped to a six- year-low. From a segmental perspective, largest revenue earner infrastructure delivered a paltry 9 percent growth in topline, but power slumped 54 percent, heavy engineering clipped at 33 percent, defence crawled in with a 9 percent growth, and hydrocarbons and developmental projects 12 percent each.

It shifted to the newer system of taxation and Raman said there is an impact of Rs 200 crore on the bottomline on a net basis due to the shift, if one computes the benefits of the lower taxation and the costs of giving up the exemptions which existed for so long in some businesses. Raman said FY20 will be the year of adjustments when it comes to tax computation, but added it is a welcome move to slash corporate taxes from a long- term perspective.

The company completed the acquisition of software company Mindtree during the quarter and it has become a subsidiary now. Its IT subsidiaries, which also includes the group's infotech arm LTI and engineering services arm LTTS, showed a decline of 4.6 percent in operating profit due to increased onsite sourcing, compliance requirements leading to additional spends in some sectors and price competitiveness, Raman said.

On the geopolitical tension in the West Asia, which chips in with half of its overseas revenue, Subrahmanyan said this is a worry point from revenue side, down from 70 percent in the past as part of a de-risking strategy. He said the current mix of 70:30 with a bias towards the domestic operations is within the expectations. The L&T scrip closed down 0.76 percent at Rs 1,430.95 on the BSE as against a 0.24 percentage point gain on the benchmark..