Blockbuster Q3 gives L&T “problem of plenty” due to order inflows: Key takeaways

Blockbuster Q3 gives L&T “problem of plenty” due to order inflows: Key takeaways

MUMBAI: Larsen & Toubro’s blockbuster order inflows and earnings for the quarter ended December has made the company hopeful of the future, a sharp turnaround from the company’s position earlier this financial year when the national lockdown forced it to junk its order inflow and sales growth guidance for the first time in many years.

“It’s a problem of plenty at the moment,” said S. N. Subrahmanyan, chief executive officer at Larsen & Toubro.

The company reported a 5 per cent on-year growth in consolidated net profit to Rs 2,467 crore, which handsomely beat analysts’ estimates. The company’s topline declined modestly by 2 per cent to Rs 35,596 crore, but was close to recovery on a year-on-year basis.

The company said that there has been a remarkable improvement in business sentiment on the ground after the sharp decline in the first two quarters of the financial year. L&T said that it was looking at the December quarter as the “quarter of turnaround”.

“India’s economy is recovering at a better-than-expected pace since the fiscal second quarter of FY21, with the government taking initiatives for enabling demand revival through significant capex ordering in the infrastructure sector,” the infrastructure behemoth said.

Here’s what stood out from Larsen & Toubro’s Q3 earnings:

Confidence up for future order inflows

L&T was perky in its expectations for future order inflows after recording the highest ever order inflows in a three-month period in its history in the reported quarter. L&T’s order inflows soared 76 per cent in the quarter to Rs 73,233 crore and it believes that several orders deferred in Q3 will hopefully come through in Q4. “Optimism for faster orders comes from the government’s thrust in key areas,” the company said.

Domestic shares in orders jumps sharply

L&T saw the share of domestic orders in its order inflows jump to 86 per cent as the share of international orders collapsed from 41 per cent in the year-ago quarter to 14 per cent in the December quarter. The rise in share of domestic orders is representative of the increased government capital expenditure in the second half of the current financial year.

Strong operating performance

While the topline of the company has not yet recovered to pre-Covid level, L&T’s operating performance bettered the pre-pandemic level as consolidated earnings before interest, tax, depreciation and amortisation grew 4 per cent to Rs 4,280 crore. The company’s operating margin in the quarter rose 60 basis points on-year to 12 per cent.

Working capital challenges waning

The company said working capital requirement fell by over Rs 1,000 crore in the quarter as L&T stressed that collections during the quarter improved strongly. L&T last year faced difficulties with its working capital as it was unable to make timely collections from various projects including those sponsored by the central government. However, the CEO said that the government deserves praise for ensuring that the companies were not crippled by working capital issues during the pandemic months, which helped his company reduce working capital despite not working in the initial months of the year.

Outlook for international orders firm

L&T said that while international order inflows have been subdued in the first nine month of the financial year, they have bid for several renewable solar energy projects in Saudi Arabia and United Arab Emirates as they look to benefit from the recent pivot in energy policy of some West Asian countries.

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