L&T

Larsen & Toubro (L&T) posted excellent numbers for Q3FY17, taking all on the Street by surprise. It has been a long while since we saw such a good and robust performance from L&T.

For Q3FY17, the company posted a healthy 39% (YoY) jump in consolidated net profit at Rs.972 crore on meager 1.5% rise in total income at Rs.26,286 crore. Though there was a 9% rise in international revenue, the lackluster growth of just 1% neutralized the overall revenue growth. The company kept the costs steady, almost status quo and that helped pull up the EBITDA – it was up 19% at Rs.2522 crore and margins improved from 8.2% to 9.6%. The 6% drop in interest expense and 14% lower tax outgo, all helped boost the net profit. Other income was up 7% due to higher treasury earnings.

In terms of segment-wise performance, Infrastructure did well with a 6% growth in revenue and EBITDA margins rose from 7.2% to 8.3% - this was  due to execution headwinds and slower payment cycles. Power segment, as expected, did not do too well – revenue was down 23% and margins also slipped from 5.4% to 1.5% - on account of higher proportion of cost jobs. Heavy Engineering segment too did not do well – revenue was down 8% and margins grew from 1.5% to 20.3% only because in previous Q3 margin was impacted by cost and time overruns. Lack of industrial demand continued to hamper growth of Electrical & Automation segment whose revenue rose 1% though margins improved from 11.1% to 15.7% - this was purely on the back of better operational efficiencies. Hydro carbon did well with 14% rise in topline and margins up to 7.8% from 1.5% - order pick up, execution progress, operational efficiency and close out of legacy jobs helped this performance. IT& Technology services revenue rose 9% though margins declined from 22.1% to 21.5%. Its Developmental Project segment did not do well – this includes Power Development, Port and Hyderabad Metro. This segment posted a loss of Rs.110 crore v/s profit of Rs.72 crore (YoY).

In terms of order inflow, as at 31^st Dec 2016, total order inflow was at Rs.957 billion, up 3% and the order book stood at Rs.2586 billion, up 1%. Order Inflow declined due to muted domestic capex and delay in awards. There was a 10% growth in International orders led by B&F, Heavy Civil and Hydrocarbon Businesses. The good news - Order Book is at more than 2x TTM Revenues.

The company has maintained the EBITDA guidance but has cut the order inflows guidance from earlier 15% to 10% now.