L&T Q2 preview: Adjusted profit expected to fall 40-50% YoY

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Engineering and infrastructure major Larsen & Toubro is expected to report weak earnings for the quarter ended September 2020 amid gradual normalisation in activities and pick up in execution after easing lockdown pressure.

Adjusted profit is expected to fall 40-50 percent YoY (partly due to higher depreciation and interest cost) and reported profit may see significant jump in growth due to exceptional gains, while revenue may see single-digit decline YoY, though sequentially, numbers may look very strong due to low base in Q2FY21.

"We expect 14 percent decline in core EPC revenues in Q2FY21 for continuing operations on gradual normalisation of construction and labour availability. Order inflow has remained strong for the company in 1HFY21 and we expect execution to ramp up further in coming quarters on easing supply chain issues and labour availability," said Kotak Institutional Equities which expects 7.5 percent decline in revenue and 37 percent YoY fall in adjusted profit.

The brokerage sees reported profit growth at 373 percent YoY because it assumed electrical and automation unit sale proceeds of Rs 9,400 crore (post tax) to be booked as extraordinary income during the quarter.

During Q2FY21, L&T announced order inflows in the range of Rs 8,500-20,000 crore (as on date, ex-services segment) across construction, water effluent, heavy civil infrastructure and defence segments, ICICI Direct said.

"We expect reasonable execution pick-up sequentially as workers are gradually returning across sites reaching around 80-90 percent of pre-COVID levels during the quarter," the brokerage added.

At operating level, EBITDA decline is expected in the range of 20-30 percent and margin contraction around 100 bps YoY, but sequentially the same may grow sharply on operating leverage benefits and cost-rationalization measures.

Ramp-up in execution trend, outlook for second half of FY21 and working capital management will key things to watch out for.