L&T net slips 7% to Rs 1,788 cr as finance cost soars 132%

L&T net slips 7% to Rs 1,788 cr as finance cost soars 132% Mumbai: Despite an increase in total income, engineering and construction major Larsen & Toubro (L&T) reported a 6.9 percent decline in standalone net profit for the March quarter at Rs 1,788 crore, mainly due to a sharp increase in interest costs which skyrocketed to 132 percent.

The lower than expected numbers came even as net sales of the city-based company rose nearly 10 percent to Rs 20,293.83 crore during the quarter vis-a-vis Rs 18,460.90 crore a year ago.

But a massive 132 percent spike in finance costs at Rs 281 crore during the quarter up from Rs 121 crore a year ago, spooked the profitability during the March period, the company said.

"The quarterly numbers are a misleading indication of the performance of the company which operates in a sector which has long gestation period. So, revenue improves as and when projects come to completion and so does profitability. Therefore, the performance needs to be seen for the year instead of the quarter," chairman A M Naik told reporters.

Also, there has been larger consumption of funds which were utilised for execution of the projects, he said.

"The operating interest cost has gone up due to larger consumption funds for execution. Also, it is necessary to understand that we are working in a higher cost environment," the chairman said.

However, the market brought down the L&T counter by close to 7 percent immediately after the earnings were announced, which also affected the market as the company presented a more or less grim guidance on order book.

The L&T shares finally closed the day with a deep cut of 5.6 percent at Rs 1517,10 apiece on the BSE, which also shed 0.25 percent at close.

Analysts said the L&T guidance lacked specifics which disappointed investors. Gautam Sinha Roy of Motilal Oswal Securities said the L&T numbers were a mixed bag. While the net income surprised negatively, the order book for the current fiscal remains robust.

Sanjeev Zarbade of Kotak Securities said, "the L&T numbers were lower than our expectations both on the revenue and profit fronts. But, he said, the order intake was ahead of his expectations.

The brokerage continues to be positive on L&T and has an 'Accumulate' call on the stock, he added.

On the finance cost, which shaved of the margins and net income, Naik said the company saw a hefty 132 percent rise in finance costs at Rs 280.99 crore during the quarter as against Rs 121.09 crore in Q4 of FY12.

For the full year, it reported a standalone net profit of Rs 4,910.65 crore, up 10 percent from Rs 4,456.50 crore a year ago. The consolidated net profit of the group, which is also into finance and IT, rose to Rs 5,205.67 crore, up 11 percent from Rs 4,693.69 crore in FY12.

Consolidated net sales rose 15.84 percent during the fiscal at Rs 74,498 crore as against a net sales of Rs 64,313.11 crore in FY12. However, the profitability for the full year was affected by over 72 percent increase in its interest outgo (at Rs 2,095.02 crore).

Order-book stood at Rs 1,53,604 crore as of March, recording a growth of 25 percent. International orders constitute 13 percent of its total order book. Order inflows during the year grew 25 percent to Rs 88,035 crore from Rs 70,574 crore in FY12.

"We are not expecting new investments from the private sector because most companies are over stressed. Also, we doubt that whether the 50 percent of investment participation by the government in PPP projects will even come by. Despite such an environment, we expect our order intake in FY14 to grow over 20 percent," Naik said.

"The international business environment provides opportunities but is highly competitive. Countries in West Asia and select markets in the CIS region, Africa and South Asia, however, hold good prospects. We are also investing in business development efforts in these select markets,"he said.

During the year, it removed a couple of slow moving orders worth Rs 17,000 crore from its books. "Removing these orders from our books is a prudent practice adopted by the company. We considered them as slow moving and cancelling them is L&T's way of abundant cautiousness," Naik said.

He further said the company has another Rs 5,000-6,000 crore worth of slow moving orders on its books. "We feel these are slow moving orders, but the owners are very optimistic. So we think they will revive," he added.

PTI