Larsen & Toubro (L&T)'s net profit during the second quarter of fiscal year 2023-24 climbed 45 percent year-on-year to Rs 3,223 crore, as per the financial results declared by the company on October 31.
L&T reported a 19 percent rise in consolidated revenue for Q2FY24 to Rs 51,024 crore, compared to Rs 42,763 crore clocked in the corresponding quarter of the previous fiscal.
Higher-than-expected sales growth was driven by execution tailwinds in the infrastructure projects segment and sustained growth momentum in the IT and ITeS portfolio.
There was an expectation that the conglomerate would increase its revenue and order inflow guidance upwards for the rest of the fiscal year.
“Order inflow has been robust this year and we expect the management to increase its revenue and order inflow guidance upwards for the rest of fiscal year,” said analysts at Centrum Broking.
Analysts see a strong tender pipeline from domestic and overseas markets. L&T announced total orders in the range of Rs 24,500-44,500 crore during the quarter.
L&T won orders worth Rs 89,153 crore at the group level during Q2, logging a 72 percent growth over the corresponding quarter of the previous year when it had won orders worth Rs 51,914 crore.
During the reporting quarter, orders were received across multiple segments, including public spaces, nuclear power, and the irrigation, ferrous metal, health, renewables and refinery sectors, the company said in a press release.
International orders at Rs 59,687 crore during the quarter comprised 67 percent of the total order inflow. Last year, L&T had international orders worth Rs 17,341 crore which accounted for 33 percent of its total order inflow
The group’s consolidated order book was at Rs 450,734 crore as of the end of September, with international orders having a share of 35 percent. Last year, L&T had ended the same period with a group consolidated order book of Rs 372,381 crore.
The order book of Rs 4,12,648 crore represents a growth of 13.5 percent over Rs 3,63,448 crore as on June 30, 2022.
Its operating margin for the second quarter of FY2023-24 came in at 11 percent, compared to 11.4 percent in the year-ago quarter and 10.2 percent in the June quarter.
Analysts had expected L&T's operating margin to come in at 10.5 percent in the September quarter.
Infrastructure Projects Segment
Segment-wise, L&T’s infrastructure projects segment secured order inflows of Rs 27,990 crore, during the quarter that ended September 30, 2023, which was 11.7 percent higher when compared to the corresponding quarter of the previous year.
The segment order book stood at Rs 304,497 crore as on September 30, 2023, with the share of international orders at 23 percent.
Revenues from the segment rose 27 percent on year to Rs 24,976.8 crore while profit from the segment fell 2.9 percent on year to Rs 1035.6 crore.
The fall in profit was mainly on account of a fall in operating profit margin from the segment which fell to 5.4 percent in Q2FY24 from 6.6 percent in the same period a year ago.
L&T's infrastructure projects segment had seen a sequential fall in operating margins for the six quarters as the company won infrastructure projects at very aggressive prices after the post-COVID-19, post-Russia-Ukraine (conflict) period in 2022-23.
The company's chief financial officer R Shankar Raman Raman said that L&T expects its operating margin to start improving from October - December as orders won at aggressive prices in 2022-23 will complete execution and new orders start being carried out.
At the end of June, around 35-40 percent of L&T's then order book of Rs 3,01,159 crore from the infrastructure projects segment was made up of orders that were won at aggressive prices.
Energy Projects Segment
L&T secured order inflows of Rs 40,141 crore in this segment, during the quarter that ended September 30, 2023, which was nearly four times higher when compared to the corresponding quarter of the previous year when the company had won orders worth Rs 8,441 crore.
Energy Projects' Segment order book crossed Rs 100,000 crore for the first time ever, taking the segment order book to Rs 106,802 crore as on September 30, 2023, with the international order book constituting 79 percent.
Revenues from the segment rose 21.5 percent on year to Rs 6,794.25 crore while profit from the segment rose 40.2 percent on year to Rs 587.7 crore.
Hi-Tech Manufacturing Segment
L&T secured order inflows of Rs 3,395 crore in this segment, during the quarter that ended September 30, 2023, which was 35.5 percent higher when compared to the corresponding quarter of the previous year.
Hi-Tech Manufacturing Segment order book stood at Rs 25,958 crore as of September 30, 2023, with the international order book constituting 10 percent.
Raman said that order inflow in the company's Hi-Tech Manufacturing segment has been slow in the first half of FY24 due to the delays in the government awarding defense contracts.
"Going forward we expect the government to aggressively come out with defense orders which will help order inflow of our Hi-Tech Manufacturing segment," Raman said.
Revenues from the segment rose 28.5 percent on year to Rs 2,041.14 crore while profit from the segment rose 5.5 percent on year to Rs 233.17 crore.
IT & Technology Services Segment
L&T's revenues from this segment rose to Rs 11,182 crore in this segment, during the quarter that ended September 30, 2023, which was 10.2 percent higher when compared to the corresponding quarter of the previous year.
International billing contributed 92 percent of the total customer revenues of the segment.
Profit from the segment fell 0.2 percent on the year to Rs 1901.24 crore. The EBITDA margin for the segment was at 20.2 percent for the quarter as compared to 21.4 percent in the corresponding quarter of the previous year.
The segment margin was impacted mainly due to higher employee cost though improved operational efficiencies partially negated the impact.
OUTLOOK
Going forward, L&T expects growth momentum in the Indian market to continue on the back of sustained buoyancy in services, consumer and business optimism, higher government spending, healthy balance sheets of banks and corporates, upcoming festive season demand and supply chain normalization.
L&T added that India continues to witness resilience on the back of strong domestic demand in contrast to global trends.
"Investment activity is benefiting from continuing public sector capex with growth being witnessed in steel consumption, cement production as well as in imports and production of capital goods. Capacity utilization in the manufacturing sector is also trending up, which augurs well for country-level capital formation," the company said.
Despite the recent conflict in the Middle East, L&T said it remains optimistic about fresh project awards in Oil and gas, industrialization, and energy transition projects from West Asian countries.
"The war in the Middle East is unfortunate but most of our orders are in Saudi Arabia, which has so far steered away from any involvement in the war. It is unlikely that Israel-Hamas have any adverse impact but we will continue to watch it," the company's chief financial officer R Shankar Raman said while speaking in the post-earnings media conference call on October 31.
The conglomerate expects volatile energy and food prices due to lingering geopolitical tensions and lingering geopolitical tensions to impact the inflation outlook globally, which could lead to a tight monetary policy stance.
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