Capital goods industry will have to be prepared for much higher level of global and local competition

Engineering and construction major Larsen & Toubro on Monday reported a 32 per cent growth in its net profit at Rs.765 crore in the second quarter ended September 30, 2011, against Rs.580 crore in the same quarter in the previous year. The company's gross sales for the period were up 18 per cent at Rs.9,342 crore (Rs.7,921 crore) and significantly, its operating margin was at 10.8 per cent.

The company has registered a growth of 11 per cent in order inflow at Rs.20,464 crore during the quarter compared to the same period of the previous year. This translates into a cumulative growth of 29 per cent in order inflow during the first half of the current year.

The order book position as on September 30, 2010, was Rs.115,393 crore.

Sales from its flagship business, the engineering and construction segment, grew 18 per cent at Rs.7,861 crore during the qurter. The company said the segment was well poised to continue the revenue growth momentum during the second half of the current financial year. The segment order inflow for the quarter stood at Rs.18,880 crore and the segment margin for the quarter was higher at 12.6 per cent supported by higher proportion of margin yielding sales.

Acute competition in the domestic electrical sector coupled with continued slowdown in the international market impacted sales of the electrical and electronics segment during the quarter. Customer sales for the quarter were at Rs.641 crore. Higher input costs and the resistance of the market to absorb a price increase, led to a pressure on the segment's margin which saw a drop of two percentage points.

In the machinery and industrial products segment, the buoyant industrial and construction sectors helped the segment register a healthy growth of 37 per cent in customer sales at Rs.681 crore for the quarter under reference, registering a margin of 18.4 per cent.

For the half year ended September 2010, L&T reported a 34 per cent drop in the net profit at Rs.1,431 crore (Rs.2,178 crore) on a total income of Rs.17,212 crore (Rs.15,328 crore).

In its outlook for the year, the company says in a statement the opportunity landscape for it is expected to be much wider and deeper in most sectors of the economy. “However, the capital goods industry will have to be prepared for much higher level of global and local competition, while grappling with the general inflationary trend seen in the recent times. The company with its superior execution capabilities and strong organisation base is well positioned to convert these opportunities into profitable business prospects, providing visibility to sustained revenue growth in the near to medium term,'' the statement adds.

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