L&T optimistic about meeting 15% growth guidance for revenue and order inflow in FY23

L&T CFO R Shankar Raman

Larsen & Toubro Ltd (L&T) is optimistic about meeting the higher end of its growth guidance for its FY23 revenue and order inflow.

The company is upbeat about its order inflow from the domestic market in India despite concerns over the slowing global growth rate, said Chief Financial Officer R Shankar Raman.

"L&T's order book from India grew 73 percent on year in July-September when compared to last year," Raman said in a post-earnings conference call on October 31.

He added that two-thirds of the orders the L&T has added in Q2 were made up of domestic orders. In total, the company's order inflow for Q2 stood at Rs 519,14 crore.

The company saw a pick up in order inflow in Q2FY23 from segments such as infrastructure, hydrocarbon and defence. There was also a pick-up in order finalisation in the domestic market.

The management said it sees green shoots in private sector investments in certain segments, particularly in minerals and metals, healthcare, information technology and services, data centres, airports and railway station developments.

Raman added that 72 percent of L&T's order book was made up of domestic orders, while international orders had a share of 28 percent.

Despite the strong order flow from the domestic market, L&T does not expect any slowdown in foreign orders.

"Slower order inflow from the middle east in Q2 was a seasonal factor and we also missed out on orders of around Rs 1500 crore," Raman said.

He added that order inflows from the middle east are only expected to rise in the coming months, especially from Dubai, Saudi Arabia, and Algeria.

L&T's consolidated order book, which is its highest-ever order book, stood at Rs 372,381 crore as on September 30, 2022, 13 percent higher when compared to the order book as on September 30, 2021.

On October 31, L&T reported 23 percent year-on-year growth in consolidated net profit at Rs 2,229 crore in Q2FY23. Consolidated revenues for the engineering and construction major were higher by 23 percent year-on-year at Rs 42,763 crore.

L&T's CFO also said that the company's operating margin is unlikely to fall any further in the coming months as commodity prices have started to soften. He added that L&T's margins faced pressure due to depreciating currency in many countries and due to cost pressures witnessed in a few infrastructure projects.

L&T's EBITDA margin from its Infrastructure Projects Segment fell to 6.6 percent from 8.3 percent recorded in the corresponding quarter of the previous year, which impacted its overall EBITDA margins as well.

“Our businesses have been facing very volatile markets globally. The ongoing Russia-Ukraine war has created volatility in global markets and many countries are also seeing a depreciating currency and facing an energy crisis, which has made India a bright spot for global investment," Raman said.

For the half-year ended September 30, 2022, L&T's consolidated revenues stood at Rs 78,616 crore recording a y-o-y growth of 23 percent with international revenues during the half-year at Rs 28,708 crore constituting 37 percent of the total.

Raman added that L&T plans to finalise a deal to divest its entire stake in L&T Infrastructure Development Projects, its subsidiary that houses the company's road assets.

"We aim to finalize a deal to sell our entire stake in L&T IDP this quarter and from January we will start seeking regulatory approvals to go forward with our divestment," Raman said.

He added that L&T's plan to derisk its holdings in Hyderabad Metro is likely to be a 2-3 year process as the metro project is still recovering from the aftermath of the COVID-19 pandemic and will take a while before becoming an attractive asset which will fetch higher valuation.

The company is working to onboard a co-investor for Hyderabad Metro. It currently holds a 90 percent stake in the metro project with the remaining held by the Telangana Government. L&T plans to bring down its stake to 51 percent in the first stage of its divestment.

"Hyderabad metro reported a loss of Rs 350 crore in Q2FY23," Raman said, adding, that the daily average customers of Hyderabad metro have risen to 4.4 lakh passengers and is likely to rise further going forward.

Raman also said that its plans to sell its 1400 megawatt (MW) Nabha thermal power project in Punjab are likely to take another 2-3 years.

"At the moment most parties are looking at thermal power projects which are in the NCLT as they are hunting for bargains," Raman said.

Raman added that L&T is not in a rush to sell off its Nabha thermal power project as it is still a profit-making business and will wait to fetch fair value for the plant.