L&T sticks to FY19 guidance, expects additional govt orders before 2019 general elections

A sign of Larsen and Toubro (L&T) is placed on a road divider in Mumbai, India May 25, 2016. REUTERS/Shailesh Andrade/File Photo - S1AETJBPPOAA

Larsen & Toubro (L&T), India’s largest infrastructure company, said its FY19 revenue and order inflow guidance of 12-15 percent and 10-12 percent growth, respectively, will remain unchanged as the government expedites pending infrastructure projects and tenders new ones ahead of general elections next year.

“There doesn’t seem to be any reason for us to doubt our ability to meet the guidance,” said R Shankar Raman, Chief Financial Officer, L&T.

He, however, ruled-out any upward revision despite stellar performance by the company in Q2 FY19, which saw net profit rising 22 percent year-on-year to Rs 2,230 crore and revenue jumping 21 percent to Rs 32,081 crore, comprehensively beating street estimates.

Total order intake rose 46 percent to Rs 41,921 crore, of which international orders constituted around 20 percent, or Rs 8,268 crore.

The management said growth in order inflow was primarily led by government and public sector undertakings, while private sector investment continued to remain subdued.

Order intake in Q2 was driven by infrastructure, power, heavy engineering and hydrocarbon segments.

“At the beginning of the year, we anticipated much of the large projects will get ordered out in the first nine months of the year and true to that assessment we have seen much of it ordered out,” Raman said.

According to him, there is still a pipeline of large orders yet to be tendered, adding: "Ordering will gain momentum as we inch closer to the election season and will get exhausted by January-February next year.” General elections are due to be held in April or May next year.

L&T, which received fresh orders from NTPC in the second quarter for installation of flue gas desulphurisation (FGD) systems, expects more such orders from the state-owned power producer as the government curtails sulfur dioxide (SO2) emissions. Each order is worth Rs 400-500 crore, the management stated.

The company expects additional contracts from oil and gas companies to install reactors and equipment to produce Euro-VI grade fuel. It is already seeing bulk orders from oil refineries as India moves towards cleaner hydrocarbon-based fuels.

Raman said the infrastructure space is going through a tough environment due liquidity problems with non-banking financial companies (NBFCs).

On capex, he said private sector investment continues to remain cautious and expects private companies to start investing once they reach the capacity utilisation threshold of 80 percent.