L&T: Order flow uncertainty

Engineering and Construction major Larsen & Toubro (L&T), share price more than halved as investors dump holdings sensing more pain in the future.
The Mumbai headquartered company runs the risk of missing its full-year order inflow target as crude oil prices plunged and the coronavirus pandemic stalled economic activity.

In fact, L&T sees a weakness on the execution front in H1FY21 due to current challenges in manpower movement. Further, the closure of government offices may also impact and defer the order awarding and finalizations.
After the 2008 crisis, the recovery was very swift, driven by continued private capex until FY12-13. The government’s ability to spend on the infrastructure at that time was much better (both Centre and states). However, today, the fiscal situation for both the Centre and states is already worsening and continued funding of infrastructure capex will be a challenge.

Investors will wait before dabbling in the infrastructure sector, given the continued uncertainty on infra capex growth, which is further worsened by the Covid-19 impact.
Yet, the sharp correction in the L&T share price provides a good opportunity for long-term investors.
Meanwhile, L&T has outlined plan to reduce its debt by Rs 30,000 crore in the next financial year by selling its entire stake in L&T Infrastructure Development Projects (IDPL) and Nabha Power, and transferring its stake in Hyderabad Metro to an infrastructure investment trust (InvIT).
L&T had a consolidated debt of Rs 1.24 trillion as of March 2019, with the finance cost of Rs 9,354 crore last year. The consolidated debt includes a debt of Rs 91,504 crore of its finance company.

L&T earns almost 75% of its revenues from the EPC (engineering, procurement and construction) and projects business, followed by 15% from IT and financial services, and the rest from manufacturing.
The company’s domestic order book did not see any major change, though it received some good orders from West Asia in the hydrocarbon and water segments. The company also received some good orders from Africa in power transmission and water which compensated for slow orders in India. In the power sector, the company received an order to set up a power project in Buxar worth Rs 7,000 crore.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.