FE Bureau Posted online: Tuesday, Jul 23, 2013
Mumbai : Shoking the Street, Larsen and Toubro (L&T) on Monday reported a poor set of numbers for the first quarter ended June 30, 2013, missing forecasts by a mile. The engineering firm's net profit crashed 12% year-on-year (y-o-y) to R756 crore while revenues rose just 5% y-o-y to R12, 555 crore. The earnings before interest, tax and depreciation (ebitda) margins contracted 60 bps y-o-y to 8.5%, leaving the operating profit flat at R1,071 crore.
The results sent the stock reeling by close to 8% on the exchanges before it ended the session at R901.95, down 7.46% over Friday's closing.
"The results were very disappointing, especially the 5% top line growth and generates concerns on whether the company will be able to achieve the guidance for the year," Manishi Raychaudhuri, Asia Pacific strategist, BNP Paribas, said adding execution seemed to be suffering. Raychaudhuri said L&T's numbers suggest that the capex cycle is not turning in a hurry. In May this year, L&T said it would grow revenues by 15-17% this year. In FY13 L&T's stand-alone revenues grew 14% at R60,873 crore.
While execution in Q1FY14 appears to have suffered, fresh orders came in at a fairly good R25,159 crore, up 28% y-o-y, taking the order book at the end of June, 2013 to R1.65 lakh crore compared with R1.54 lakh crore at the end of March 2013. Order cancellations during the quarter were low at close to R600 crore in the shipbuilding segment.
The L&T management conceded, however, that pricing was pressured in a tough environment. R Shankar Raman, chief financial officer (CFO) observed that opportunities were limited even as competitive pressures persisted. As a result, he said, pressure on pricing was to be expected. "There is an environment-led pressure on margins. Also, sales volumes are muted and with the capacity that we have, we could probably do 30% more revenues," the CFO explained.
The engineering major, however, retained its guidance for FY14, saying margins would be stable at 11-11.5%. "We do not think there are compulsions yet to revise the guidance. Revenues are never linear; so the quarterly dip is not indicative of the year ahead. What gives us confidence is the quality of the order book that we have," Shankar Raman said. The CFO pointed out that although 60% of contracts have a pass-through element because of which the gains from softening prices would be shared with customers, the company did benefit in some contracts.
L&T is also operating at less than full capacity, the management said.
"We have built capacity, in segments like power, since we're looking at the country growing at much higher rates. So, right now, there is some amount of under-recovery relative to capacity," explained K Venkataramanan, CEO & MD, L&T.
Of the order inflows in the June ended quarter, 86% came from the home market and 14% from overseas. International sales accounted for 27% of total revenues while 73% was accounted for by domestic sales.
The company's forex loss stood at about R200 crore largely translating out of loan balances and unhedged open exposures on payables and receivables from its businesses. This was lower than the R267-crore exchange loss reported in the corresponding quarter last year. The net debt as on June 30, 2013, stood at around R11,000 crore, of which R8,500 crore or $1.5 billion is in foreign currency.
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