L&T needs around Rs 42,000 crore in the fourth quarter to meet the FY19 guidance.
Larsen & Toubro (L&T), India’s largest construction and engineering company, is poised to meet the order guidance in FY19 led by strong order inflow in the fourth quarter, as Centre and state governments expedited contracts ahead of general elections and some state assembly elections.
The Election Commission of India announced the dates for Lok Sabha and some state Assembly elections. The elections will start on April 11 and continue until May 19. The counting will be held on May 23. As per the election code, the government is not supposed to announce any new projects ahead of elections, and refrain from awarding large contracts.
L&T had given a guidance of 10-12 percent increase in order inflows in the current fiscal year. The company had order inflow of Rs 1,52,908 crore in FY18. The order inflows as on December 31, 2018, stood at Rs 1,20,296 crore. L&T needs around Rs 42,000 crore in the fourth quarter to meet the FY19 guidance.
L&T stopped giving details such as the value of the order, it now classifies orders in four buckets such as significant (Rs 1,000-1,500 crore), large (Rs 2,500-5,000 crore), major (Rs 5,000 – 7,000 crore) and mega (above Rs 7,000 crore). Even at the lower band, L&T has won orders around Rs 35,000 crore in Q4FY19. It further needs orders worth around Rs 7,000 crore by March end to meet the target.
L&T hasn’t met its order inflow guidance in the last six years, but FY19 could be a different year led by public capital expenditure on transport, water, and transmission and distribution network.
Since the past few years, L&T's growth in order inflow was primarily led by government and public sector undertakings, while private sector investment continued to remain subdued.
Can it continue the momentum?
Despite strong performance so far in FY19, L&T is a bit circumspect, as there is a probability of slowdown in revenue and order intake during the subsequent quarters.
“We do think that there could be a bit of slowdown in the government machinery due to elections, ultimately our execution is based upon whether customers pay us on time or not. If they pay us on time, then we will go ahead and execute. If they delay payments, then we will obviously slowdown,” said Arnob Mondal, Vice President, Corporate Accounts and Investor Relations said in company’s Q3 earnings call in January.
But analysts aren’t too concerned about general elections impacting L&Ts future order inflow, as Central government share is now less than one-fifth of the total order book.
L&T’s management earlier said the central government accounts for a 15 percent share of current order backlog, whereas 29 percent is constituted by states and 37 percent by public sector undertakings (PSUs). The private sector is 20 percent of its order book.
“We look into the funding pattern of the key infrastructure projects in the country and find that from a mostly central government-funded pattern, it is gradually moving to a more diversified pattern where states, municipalities, multi-lateral agencies, and other quasi-government entities are becoming important,” Emkays said in its recent research report.“This distributed funding pattern should protect central government capex from fiscal deficit woes and slowdown concerns relating to the 2019 General Elections,” the report added.