One quarter of sluggishness does not impact a company in a big way, says Shirish Rane of IDFC, referring to construction major L&T's Q1FY16 numbers. He said the company has a lot of project in hand and post execution of those, revenues will pick up in next 2-3 quarters.He stays bullish on the stock.Below is the transcript of Shirish Rane's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: What is your overall comment on Larsen and Toubro's numbers? A: Overall numbers are below our estimates both on revenues as well as on the profit after tax (PAT) side even on the order flow side, the numbers were relatively weaker than what we were expecting. However, last quarter was a big quarter in terms of order flow, so some weakness was expected but it disappointed us by Rs 4,000 crore-5,000 crore lesser orders. In terms of revenues it is more a question of some of the large orders reaching profit booking threshold especially in Middle East, the metro project and they got lot of orders in the Q4 last year nearly Rs 46,000 crore. So that would have been slower in execution in Q1. So that execution will pick up towards third and fourth quarter. We think although the numbers were little disappointing, the revenue numbers and order flow numbers will pick up over the next three quarters. We have not changed our estimate on the stock and we continue to remain bullish on this stock.Sonia: Do you think these results will put to risk the management's revenue guidance of 15 percent for FY16?A: We do not think so because we have seen many times in the past that one quarter weakness does not translate through the year as long as the order backlog is strong and there are no slow moving projects. However, we have seen in L&T's case that there is hardly any slow moving project, so it is more a function of accelerating execution which we believe will happen over the next nine months and hence L&T would be able to meet its revenue guidance. Obviously there could be 1 or 2 percent plus or minus on exact 15 percent but as long as it is within that band, market will be happy and we will be happy. Latha: What is your price target?
A: We have Rs 2,032 price target on the stock.
Latha: Do you expect that L&T may remain a prisoner to the Government of India spending as well and while it has improved in the first quarter - that could be a significant risk factor for L&T?
A: Overall the order pipeline which was shared by L&T was about Rs 500,000 crore which includes Rs 240,000 crore on the infrastructure side. So in a way we do not see that there would be a major slowdown in government spending over the next nine months. However, bulk of this Rs 240,000 crore order pipeline comes from roads, urban infrastructure which includes metros, water and other smaller urban infrastructure project. Therefore, in a way we are reasonably comfortable about the government spending on the sectors I mentioned and we think L&T will be able to meet its order flow guidance based on the ordering in these sectors.
Sonia: What are your expectations on the margin front? What are you forecasting?
A: We are forecasting 70 bps improvement in our EBITDA margins year-on-year (Y-o-Y) which is lesser than what the company is guiding at about 100 basis points. To take into account the variation and execution which can happen because there are different geographies, different locations and some of the projects have come in the Q4. So they may or they may not reach profit booking threshold within this financial year. Therefore, keeping all of that in account we have taken 70 bps improvements in EBITDA margins.
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