L&T eyes sales target for FY12, despite tough environment

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L&T eyes sales target for FY12, despite tough environment

Engineering and construction major Larsen & Toubro may struggle to achieve its full year revenue and order flow guidance, even as the company said it “was doing everything possible” to meet the target

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Shaheen Mansuri
Moneycontrol.com

Engineering and construction major Larsen & Toubro may struggle to achieve its full year revenue and order flow guidance, even as the company said it "was doing everything possible" to meet the target. The company's third quarter numbers announced today were better than market expectations, though net profit was boosted by a sharp rise in other income.

While analysts feel the company has a daunting task at hand and could miss its forecast by a wide margin, a senior L&T official said a couple of key orders could make the difference between the company meeting or missing its projection.

L&T had guided for a 5% growth in order flows for FY12, which means it will have to clock orders of over Rs 34,000 crore this quarter. Also, it will have to clock revenues in excess of Rs 34,000 to meets its revenue growth target of 25% for the full year.

L&T shares, which were in the red till a few minutes before the numbers were announced, closed marginally higher after the numbers were announced. At Monday's closing price of Rs 1277.70, the stock has gained almost 30% from its lows touched early last month. This could indicate that the strong third quarter numbers have already been discounted by the market.

"Going ahead, we are targeting not only the available domestic opportunities in the hydrocarbon and infrastructure sectors but also in overseas markets mainly in the Middle East and South East Asian countries," said R Shankar Raman, L&T's chief financial officer.

He further said that 80% of the orders to be executed are from domestic power and infrastructure companies and the remaining are from overseas.

Yet Shankar Raman warned of the operating environment which continues to be challenging and a couple or orders could lead to a miss of guidance. "EBITDA margins could correct 75-125 bps y-o-y," he added.

Meanwhile, though results were above expectations, slight disappointment came from earnings before interest, tax, depreciation and amortization or EBITDA margins, which stood at 9.65 against 10.7% y-o-y. EBITDA margins declined by 120 basis points largely due to lower margins in electrical and electronics (E&E) division. Margins are lower in E&E due to nature of volatility and depend on product mix and commodities.

But the management says current order book of Rs 49415 crore gives revenue visibility for the next 24 months even while acknowledging stiff competition for orders in the hydrocarbon sector.

This is what brokerages have to say on L&T's Q3 performance

GOLDMAN ON L&T
Revenue beat estimates, Significant PAT outperformance Order book inflows at 17,100 crore above estimates PAT seems to be helped by other income Need Rs 20000 crore orders in Q4 to meet guidance
FY12 guidance is achievable

RBS ON L&T
Impressive earnings, margins below estimates

CITI ON L&T
EBITDA margins 9.6%, higher contraction than estimate Order Inflow up 28% ahead of estimates Need Rs 34300 cr of orders in Q4 to meet guidance company may meet sales growth guidance of 25% Estimates will have to be revised upwards

shaheen.mansuri@network18online.com