L&T - ORDER, ORDER!!

On 25^th of March 2020, L&T hit a new low at Rs.661.50. Today, 16^th April, the stock closed the day at Rs.912.

The stock has been going up over the past 7 sessions and in this period, rose almost 18%.

This sudden turn of fortune for the stock is not just bargain hunters looking to buy at these low levels for the long term. The price jump is a consequence of the “order” announcements it has been making over the past few days. In the current situation where economy is under a lockdown, naturally, a company getting new orders, not just from India but exports too leads to a sense of great positivity. The feeling is that all is not bad, there are a few silver linings that we are seeing.

First, L&T’s order classification: it does not give the exact order worth due to confidentiality issues.

Take a look at the orders it has received:

1: On 7th April – “Large” order from Indian Army for the Smart World & Communication Business of L&T Construction.

2: On 8th April – “Large” order from Indian Oil for L&T Hydrocarbon Eng

3: On 9th April – “Major” orders from Egypt, Oman, Kuwait and domestic orders in Chennai and UP

4: On 13th April – “Large” order for L&T Construction’s Water and Effluent treatment business from Karnataka Urban Infra Development and Finance Corp

5: On 15th April – “Significant” orders for its Heavy Civil Infra business of L&T Construction

6: On 16th April – “Significant” orders for the heavy engineering unit, notably one from Wuhan Engineering Ltd, China against stiff Chinese competition for Talcher Fertilizer.

In ten days, L&T reported receipt of orders worth more than Rs.10,000 crore – 3 were “large”, one was “significant” and one was “major.”

It is not as though L&T is getting these orders despite the lockdown; these orders are coming in now after having made the bids couple of months ago. And this happens every year – last fiscal 33% of the total FY19 orders came in the last quarter.

50% of L&T’s orders come from the Govt of India and we do not see much happening on that front in the coming few months.

After its Q3 performance, one had expected the company to scale down its order inflow guidance but it stuck to its stance and maintained 10-12% growth. In Q3, its order inflow was at Rs.41,579 crore.  Till the end of Dec, nine months of FY20, the total order inflow was at Rs.1.28 lakh crore.

So, to honor the guidance, it would need Rs.60,000 to Rs.70,000 crore worth orders in Q4 alone. Till 26th March, its order inflow for the Q4 was at a total of Rs.27,500 crore, without taking into consideration orders less than Rs.1000 crore. And these six orders will add another Rs.10,000 crore. With oil prices hitting new lows, it is very unlikely that its main export forte, the Middle East might defer orders in the coming months or the orders already given, might see deferment.

Thus L&T, over the past few session might have stolen the limelight and announced a spate of orders; but the bottomline is that these will not be enough to meet the guidance. And the inference we draw from this – L&T might cut is order inflow guidance for FY20.

Q4 still had a good order inflow as there were two months of good inflows but Q1 will be tough as capex is the first thing which gets shunted in such times. The order pipeline ahead looks pretty clogged.