Larsen bets on govt contracts post elections

When investors want to bet on India’s infrastructure sector growth, Larsen & Toubro is usually the barometer. They watch the order book status and order inflow of the listed engineering giant to get a sense of the underlying economic activity.

L&T’s order inflow this year grew as expected. However, the growth is largely from the private sector (52%) and own development projects (22%). The percentage of the government order inflow is down to 26% from 59% in 2009-10. The company management has blamed a slowdown in the government decision-making for a fall in the government order inflow.

A M Naik, chairman, L&T told reporters on Thursday that the company expects the government to hasten the process to award contracts. L&T expects Rs 25,000 crore worth of railway corridor contracts to be awarded this fiscal now that elections in Bengal are over and the new railway minister will be able to take decisions.

L&T met analyst expectations on revenue and profits for the year ended March 2011. The company reported a consolidated revenue of Rs 52,089 crore, a growth of 18% over the year ended March 2010. The net profit from normal operations rose 11.6% to Rs 4,237 crore. The company had extra-ordinary income from sale of businesses last year.

The company managed to maintain profit margins for the current financial year by adopting stringent cost control. (Listen to Shankar Raman executive VP-finance L&T below). The company management admitted that rising input costs, interest rates are likely to put the pressure on margins going forward. However, the stock market liked the way the company met expectations. L&T shares rose 5% while the BSE Sensex ended flat on Thursday.

When asked about business restructuring, Naik said that the company is looking at selling some non-core businesses. He said that the electrical segment, which was recently hived off into a separate company, will not be sold. Speculation was rife that the company could get close to Rs 13,000 crore for the segment that makes switch gears and other equipment.

R Shankar Raman believes that any slowdown in orders inflow and a spike in interest rates could hurt company’s profitability going forward. Listen to his views on the outlook for margins and cost management at L&T.