Q2 Results: International Orders Help L&T Beat The Slowdown Blues 

Larsen and Toubro Ltd.’s quarterly profit beat estimates as overseas orders helped India’s largest construction and engineering firm skirt the impact of a prolonged domestic slowdown and maintain its guidance for the rest of the fiscal.

Net profit rose 13 percent over last year to Rs 2,528 crore in the quarter ended September, according to the company’s exchange filing. Analysts tracked by Bloomberg had expected profit to decline to Rs 2,144 crore.

• Revenue rose 15 percent year-on-year to Rs 35,328 crore.
• Operating profit increased 13 percent to Rs 4,021 crore.
• Operating margin narrowed 10 basis points to 11.4 percent.
• Order book stood at Rs 3.03 lakh crore.
• Revenue guidance maintained at 12-15 percent.
• Order inflow guidance at 10-12 percent.

Order execution for most infrastructure firms has remained muted due to a slowdown in public spending, particularly by state governments and sluggishness in export markets. Still, L&T was among the better-placed firms as it was able to secure deals from a finite pool. “In a tough macro environment, L&T has been able to win a high share of limited big-ticket order opportunities,” Yes Securities had said in a prior note.

“We haven’t really led pace on execution. We’re learning to cope with headwinds that projects pose as we execute,” Shankar Raman, chief financial officer at L&T, said at a post-earnings conference. “The demand pull from borrowers and lending push from banks were absent. Consequently, we saw a period of lacklustre investments.”

Still, order flows from outside India aided L&T’s results. International orders formed over a third of total order flows in the quarter. While domestic orders, at Rs 31,600 crore, fell 3 percent, international orders more than doubled to Rs 16,700 crore.

That shift in the mix of orders doesn’t worry Raman, though. “So long as the company is able to straddle between the two markets and compete for compelling opportunities, I think we should be able maintain growth momentum.”

L&T’s infrastructure segment—which generates bulk of the revenue—saw a 33 percent decline year-on-year in new orders at Rs 15,669 crore. The heavy engineering segment, too, saw a 48 percent fall in orders over last year.

“Fortunately for us, hydrocarbons stepped in,” Raman said. Growth in order flow and revenue was led by L&T’s hydrocarbons and services segments, which now also includes the newly acquired subsidiary Mindtree Ltd. “All of them have seen revenue and orders come predominantly from international markets.”

There are enough elements in the global and domestic economies that make the environment “uncertain” and “volatile” which can hurt order inflows, Raman said. “We do take heart from the fact that we’re pursuing a fairly robust order book and considering the amount of work that needs to be done in industrials and infrastructure, we do believe the guidance stays intact.”

Major order wins included the Navi Mumbai airport, a residential project from City and Industrial Development Corporation, a boiler project for THDC Ltd. and a hydrocarbon project in the Marjan field by Saudi Arabian Oil Co.

Shares of L&T closed 0.76 percent lower ahead of the results announcement compared with the benchmark S&P BSE Sensex’s 0.24 gain.