L&T Q2 net falls 45% to Rs 1,410 crore

Larsen and Toubro (L&T), the country’s infrastructure and construction behemoth, reported a 45% year-on-year decline in its consolidated net profit to Rs 1,410 crore in the September quarter. Despite the sharp fall in profits, the company managed to surprise the Street, which had estimated the company to post a net profit of Rs 1,250.77 crore. With uncertainty still looming large on the course of the pandemic, the company refrained from giving a guidance for the year yet again. L&T remained cautiously optimistic about the prospects of the second half of the year, as some signs of economic revival were visible, though private capital expenditure could still be a good two years away.

The company reported an exceptional gain of Rs 3,919 crore on the sale of electrical business to Schneider Electric, which led to an overall consolidated net profit of Rs 5,520 crore.

R Shankar Raman, chief financial officer, L&T, said, “This quarter has been representing road to revival from the dips of Q1 that we found ourselves in. However, thanks to the lingering effect of this pandemic, turnaround in fortunes of companies are still work in progress.”

He added that there is tremendous uncertainty in the environment still and refrained from giving a guidance. “If guidance is given, it has to be backed up by sufficient data points. We are still discovering as to what the new normal is going to be. Hence, the company is not in a position as yet to give a direction to the market with any credibility,” he said.

Raman also said there were some signs of recovery in economic terms. “We find higher volumes of goods and freight traffic so the ports, airports and toll roads are doing better. There is also higher demand for generators of power and producers of coal etc. Energy demand has looked up which is indicative of the operations at the various sites and factories,” he said.

There has been a departure from the low base of first quarter, but a lot of ground needs to be covered. “As compared to Q1 when the uncertainty was still looming large, at the end of Q2 there seems to be light at the end of the tunnel. But suffice to say that we still have lot of ground to cover before we breathe easy of having covered the lost ground completely,” Raman said.

The company’s revenues were impacted by the pandemic. Revenue from operations declined 12% y-o-y to Rs 31,035 crore. International revenue during the quarter at Rs 12,148 crore constituted 39% of the total revenue. The operating profit for the second quarter ended September 30 was down 17% y-o-y to Rs 3,330 crore, while the operating margins declined 70 basis points to 10.7%. Raman said ebitda (earnings before interest, tax, depreciation, amortisation) is a combination of job mix and volume.

“If we are executing jobs at early stage of the contract, the ebitda will move slower and if the jobs reach margin recognition threshold they will gallop. Volumes are just beginning to pick up, it has not reached its pre-Covid peak in terms of momentum and I think the ebitda will improve in line with the improvement in volume lines.”

In terms of the segments, though ordering activity picked up momentum in the infrastructure segment compared to Q1 FY 2020-21, bid deferrals and loss of some select prospects impacted the order inflow. Hydrocarbons remained impacted due to volatility in oil. Power segment recorded muted order inflows during the quarter as the ordering activity continued to be lacklustre, with postponement of key tenders. Defence registered substantial growth over the corresponding quarter of the previous year on a low base, this was on account of contract for supply of Pinaka Weapon Launcher Systems. Developmental projects segment registered a decline of 22% over the corresponding quarter of the previous year largely due to suspension of Metro services in Hyderabad due to Covid lockdown. Nabha Power project, however, witnessed pick up in offtake with PLF reaching 92%.

However, the company had robust operating cash flows. The cash from operations during the quarter was well in excess of Rs 4,000 crore. The collections too continued to be robust. “The clients have been quite understanding when we had sought cash to keep our workforce on sites mobilised and that trend continues. At a group level, we collected close to Rs 30,000 crore of cash during the second quarter,” he said.

S N Subrahmanyan, CEO and managing director, L&T, said that the work on sites was still not normal due to restrictions of social distancing and many other aspects. “We have not worked for five months of the year. We are getting back to somewhat normalisation levels on the workforce front. However, productivity is not what it ought to be. We are yet to get the back the lost momentum”.

Giving the outlook for the second half of the year, Subrahmanyan said the company is “cautiously optimistic”.

“We are quite busy doing reviews especially in areas like heavy civil which is metros, high speed, ports and harbours, hydel projects and see lot of prospects. We continue to bid for these and we are are very sure that we will succeed in many of them”. He added that in water, power transmission, the company sees fair amount of prospects.

Tepid economic activity slowed down the order inflow momentum as well with fresh orders declining 42% on a y-o-y basis to Rs 28,039 crore. Order inflows, however, were better compared to Q1 as they rose 19% quarter on quarter. However, the order book at Rs 2.98 lakh crore remained flat on y-o-y basis. The orders largely came in from government sponsored programmes with private sector still remaining wary of investments. Subrahmanyan said that it will be tough for the private capital to come in for the next two years.