L&T Posts Strong Performance on Steady Order Flow

L&T posts strong performance on steady order flow

The engineering and construction giant Larsen and Toubro (L&T) shares rallied 3% Thursday on reporting strong order flows for the December quarter and maintained its order inflow growth for FY20 at 10-12 percent.

Analysts were expecting L&T to cut inflow guidance amid a tough macroeconomic environment.

The inflow guidance implies revenue of Rs 50,000-54,000 crore in the March quarter, which would be 20-30% higher compared with the same quarter last year.

The consolidated order book stood at Rs 3.06 lakh crore. For the quarter gone by, the company won new orders worth Rs 41,579 crore, with international orders accounting for 43% for the total orders at Rs 17,901 crore.

L&T reported a 15.2% on-year rise in consolidated profit at Rs 2,352 crore for the December quarter. The company had reported Rs 2,041.62 crore profit in the same quarter last year.

Revenue for the company rose 6% to Rs 36,243 crore for the quarter. International revenue stood at Rs 12,871 crore and accounted for 36% of the total sales.

Order inflows remained robust while stable working capital levels led to strong cash generation, it said, adding that the improvement in core Ebitda margin was a key positive in the third quarter.

Consolidated Ebitda margins came in at 11.30% against analyst’s estimates of 11.10%.

L&T won new orders worth Rs 41,579 crore during the quarter. Thanks to large wins in power transmission & distribution and metallurgical & material handling business. Infrastructure segment secured orders worth Rs 28,115 crore, up 28% on the year.

However, the bigger worry for L & T continues to be from the Infra and Heavy Engineering business segments where growth continues to be negative on the back of weakening macros and lower government offtake of new orders

On the other hand, L & Ts Hydrocarbon business has done well in Q3 FY20 while the International business has also reported good growth.

Overall we believe that the markets were happy that the management has retained its order book inflow guidance of 10-12% despite a challenging domestic macro environment and margins being retained at similar levels like Q2FY20.

However we believe that for a full-fledged recovery for L & T the domestic macros have to improve, the working capital cycle gets shorter and liquidity gets more comfortable.

Hopefully, we believe that despite challenging headwinds the company should grow well over the next 2-3 years.

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