L&T Set To Meet Order Forecast For First Time In Six Years

India’s largest engineering company is set to defy the uncertainty ahead of the general election to meet its order guidance for the first time in at least six years.

Larsen & Toubro Ltd., the bellwether for infrastructure and private investments, is on track to close the financial year with at least Rs 1.68 lakh crore worth of fresh orders, meeting the target set at the start of the fiscal. That was aided by the government’s infrastructure spending ahead of the election at home, and overseas and domestic orders to develop oil & gas fields and refineries as crude prices rose.

The company guided for a 10-12 percent growth in order inflow for the ongoing financial year 2018-19. It needs orders worth Rs 47,900 crore to Rs 50,900 crore in the quarter ending March to achieve the target as, according to its exchange filing, it bagged more than Rs 1.20 lakh crore worth of orders in the nine months ended December.

L&T has already reported large orders of more than Rs 27,500 crore in the fourth quarter, according to Lokesh Garg, analyst at Credit Suisse. Including services and smaller product orders, the flow could well be touching Rs 40,000 crore, he said. And there’s still a month to go in the quarter.

The company is on track to meet the guidance when analysts were cautious about the second half of the ongoing financial year as the management had said orders will be front-ended. Around 70 percent of the orders bagged by L&T are domestic, Girish Achhipalia, analyst at Morgan Stanley, wrote in a note. That’s contrary to concerns of a slowdown in domestic orders prior to the general election, he said, adding that the momentum in the fourth quarter appears to be reasonably strong.

The infrastructure conglomerate will meet the forecasts for the first time since at least the year through March 2014—a phase when private investments remained largely subdued and government spending drove the economy. To be sure, order inflows are still driven by the government and public sector companies, its management said in a conference call, accounting for 80 percent of the backlog with private companies contributing the rest.

How Forecast Changed In The Past

• FY14: Cuts forecast to 15 percent from 20 percent.
• FY15: Reduced guidance to 5-7 percent vs the initial forecast of 15 percent.
• FY16: Cut guidance twice, first from 15 percent to 5-7 percent and then to flat.
• FY17: Lowered forecast to 10 percent growth vs 15 percent.
• FY18: Cut order guidance to flat vs 12-14 percent initial growth forecast.

On its part, the company, in response to BloombergQuint’s emailed queries, said it doesn’t release cumulative order inflow numbers mid-quarter.

New Classification

Starting this quarter, L&T has stopped giving exact order details but classifies them into four buckets. The older practice of disclosing full details has been stopped due to intense competition, Subramaniam Sarma, the managing director and chief executive officer of the hydrocarbons division, had told BloombergQuint.

L&T’s management had said that Rs 20,000 crore worth of orders were deferred from the third to the fourth quarter.

The order inflow in the ongoing quarter was aided by two valued at more than Rs 10,000 crore each, exchange filings show. The first one for design and construction of a major airport and the other a gas field development order in Algeria. The hydrocarbons division bagged orders in excess of Rs 10,000 crore for the first time in a quarter, helped by rise in crude prices.

The order inflow improves earnings outlook for L&T, according to Amish Shah, analyst at Bank of America Merrill Lynch. Its book-to-bill ratio stands at 2.6, with a lower share of crude-price volatility-linked Middle East orders.