Engineering major Larsen and Toubro Ltd has given a guidance of 12-15 percent growth in order inflow and revenue for 2022-23 after a challenging year, which was marred by orders deferments and pressure on margin due to disruptions caused by Covid and geopolitical events, the management told reporters on May 12.
The company also said that it is ready with its five-year strategic plan, namely 'Lakshya’26', that chalks out a path for future value creation for its stakeholders.
“We look at FY23 with hope and optimism. We think both the revenues and the order inflow would increase between 12 and 15 percent,” Chief Financial Officer R Shankar Raman said in a press briefing.
L&T’s FY22 order inflow grew by 10 percent and revenue rose 15 percent, while it had earlier guided that both may have “low-to-mid teens” growth rate.
While cost headwinds and delay in claim certification in projects and manufacturing businesses impacted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin in the fourth quarter, the company expects some revival going ahead.
“We do expect to recoup some amount of that 100 basis points margin that declined during the year. So as against possibly 9.1 percent EBITDA level, maybe it will go up to about 9.5. It will be our endeavor to get there,” Raman said.
For the fiscal ended March, the company’s EBITDA margin declined to 9.2 percent from 11.5 percent a year ago.
The CFO also said that L&T sees a potential order pipeline worth Rs 8 lakh crore- Rs 9 lakh crore. L&T reported its highest ever consolidated order book at Rs 357,595 crore as on March 31, 2022, with international orders having a share of 27 percent.
On May 12, L&T reported a 10 percent year-on-year rise in consolidated net profit at Rs 3,621 crore, which was below analysts' expectations. The infrastructure giant's consolidated revenue from operations rose 10 percent on-year to Rs 52,851 crore for the reported quarter, missing analysts' expectations. Profit was estimated at Rs 3,950 crore on revenue of Rs 53,100 crore for the quarter, according to the average estimates of analysts polled by CNBC-TV18.
The Year Gone By
Infrastructure segment, L&T’s largest business, witnessed a decline in order inflow of 9 percent year-on-year to Rs 93,515 crore.
“The speed with which bids were put out and awards were given in the prior year, where the government and all the agencies and sponsors of projects were very keen to revive the economy from the direct impact of COVID, has seen a certain slowdown because of the other global events during the current year,” Raman said.
“The markets have been in a churn– liquidity and interest rates have been shifting– so many of the targeted orders that we were expected to win in the current year have got deferred to the following year,” he said, adding that he sees these orders as an “event postponed.”
The hydrocarbon business had a “bumper year,” according to the management. Almost 80 percent of the orders that the company won in the segment were from international markets.
L&T’s power segment, which does engineering, procurement and construction jobs for primarily the conventional power sector, remained subdued for the year ended March. “We are trying to, like many in the sector, migrate from black energy to green energy. The opportunities that are available for coal and gas EPC are limited,” Raman said.
He said that the heavy engineering segment endured a “very difficult year” as due to the volatility in commodity prices, much of the projects got deferred.
L&T undertakes 5-year plans to revisit the group’s strategy and work towards growth. After suspending work on the new strategic plan due to the disruptions caused by Covid, the company has finalized the new plan and is calling it 'Lakshya’26'.
Raman said that the group has identified some major strategic pillars to focus on as core operations and will exit some non-core operations. He said L&T will aim to undertake “very targeted selective bidding, and razor sharp execution”.
The group aims to expand the size and scale of its information technology and technology services portfolio. The company will incubate digital offerings in data centers, tech education and business-to-business e-commerce. It also has plans to invest in the new areas of green energy. “Aggressive plans are on to unlock value of its current investment in few non-core areas such as the concessions space,” the company said.The company had earlier identified three businesses for monetization– L&T IDPL, Hyderabad metro project and Nabha Power plant. The management said it hopes to conclude these during this strategic plan.