Larsen & Toubro: Q1FY15 Result Analysis

The consolidated net profit of L&T increased to Rs 967 crore in June’14 quarter as against Rs 459 crore in June’13 quarter, up 111%. This can be attributed to increase in sales to Rs 18975 crore in June’14 quarter from Rs 17241 crore in June’13 quarter. Revenue from international markets consisted of Rs 4781 crores, 25% of the total revenue. The EPS stood at Rs 10.42 per share in June’14 quarter, up from Rs 4.96 per share in June’13 (YoY).  

The total expenses of the company increased to Rs 17266.83 crore in June’14 quarter from Rs 15925 crore in June’13 quarter. This was mainly due to increase in employee benefit expenses which rose 11.87 % (YoY) and increase in depreciation, amortization impairment and obsolescence expenses which rose 45% (YoY). Increase in depreciation costs was attributed to the new Companies Act guidelines by the management. The EBITDA margins increased to 13.3% in June’14 quarter from 10.9% in June’13 quarter (YoY).

The company has sold its stake in one of its subsidiaries L&T financial holdings, in order to comply with SEBI’s listing norms, from which it gained Rs 249 crore in this quarter, which is an exceptional item. It also sold its stake in City Union Bank. Furthermore, L&T along with Tata Steel sold Dharma port to Adani port. Dharma port was identified as a non-core asset and the management, in an analyst meet, also said that it will focus on getting rid of non-core assets in the coming quarters. If it were not for this exceptional item the net profit would have stood at Rs 718 crore (YoY).

The management also stated that the domestic orders are slowing however, the international orders will compensate for this. The middle-east region has seen a strong order book inflow as the government is planning many infrastructure projects. Moreover, the company is focusing on shifting to low cost zones from high cost zones. The current order book stands at Rs 1.95 lakh crore, up 13% (YoY). The international order book constituted 44% of the order book while 56% was contributed by the domestic markets. The international orders stood at Rs 14754 crore this quarter. International orders contributed 26% of the total revenue standing at Rs 4781 crore.

Coming to segment wise performance; infrastructure segment saw a growth of 17%, heavy engineering 56%, IT & technology segment 22%, financial services segment 24% others 27%. Whereas, power, heavy engineering, electronics & automation segments saw de-growth of 32%, 13%and 4% respectively. The most affected segment was that of hydrocarbons business which saw de-growth of 49%. This was mainly because of lower opening order books and deferment of projects. 
Segment wise EBITDA margins were as follows: the infrastructure segment has recorded an EBITDA margin of 10.3%. while Power 20.6%, metallurgical & material handling segment 13%, heavy engineering 12.7%, Engineering & automation 8.9%, IT 20.2%, developmental projects 67.9% and others 20.6%.

The management expects the investment cycle to remain subdued during the quarter ended June 30, 2014. Despite the currency markets being stable and capital markets being buoyant, high inflation, elevated interest rates and tight liquidity were persistent. The domestic order book slowdown was compensated by increase in international order book. The company also expects the core sector revival through conducive investment environment. Company is confident of sustaining its growth momentum by utilizing emerging opportunities for which it has positioned itself.