New norms to dent L&T’s topline by 3%

The company’s net profit and order book are unlikely to be affected due to the accounting standards.

Larsen & Toubro (L&T) is likely to see a decrease of between Rs.2,000 to Rs.3,000 crore, or about two to three per cent dip, in revenue and 100 basis points (bps) fall in earnings before depreciation and income tax (EBDIT) margins in the financial year ending March 31, 2017 due to adoption of Ind-AS accounting standards, according to a top official.

However, its net profit and order book are unlikely to be affected.“If the first quarter revenues are lower by Rs.400 crore, in a year’s context, the impact could be to the extent of Rs.2,000 to Rs.3,000 crore between the numbers that we normally project out,” R. Shankar Raman, Whole-time Director & CFO, L&T told The Hindu . “We had a revenue of about Rs.1,03,000 crore for 2015-16, for the full year consolidated basis, that if I were to restate based on Ind AS would be down by about Rs.3,000 crore,” he said.

“For the first quarter, the revenues were lower by Rs.400 crore due to this disaggregation.

“In first quarter of FY16, we had revenues of Rs.20,400 crore under the old system that restated into the new system was Rs.20,000 crores and in the current quarter, we had reported the numbers based on Ind As which was Rs.21,800 crore,” Mr. Raman said.

New norms

The lower numbers are because the new Ind-AS does not consider a company as subsidiary even if the holding company owns over 50 per cent.

Such a company is treated as joint venture unlike the old I-GAAP where 50 per cent and more in an entity is deemed as a subsidiary and its revenue, costs and profits are aggregated in the consolidated financials.

Due to the new standards, L&T could not aggregate the revenues, costs and profits of its joint ventures like MHI Boiler, MHI Turbine, the forge shop JV with NPCIL, and the IDPL -- where it has CPPIB as a partner -- in its consolidated results leading to the fall in top line.

Some brokerage houses like Ambit Capital and IDFC rated the company’s stock ‘sell’ after the first quarter results despite a 46 per cent increase in net profit to Rs.610 crore citing the results to be below expectations, and the confusion over restated numbers.