Improved margins and a pick-up in order execution saw Larsen & Toubro (L&T) maintain growth in the fourth quarter of 2009-10, ending with a net profit of Rs.1,438 crore, a jump of 44 per cent over Rs. 998.52 crore in the same quarter in the previous year. The company's net sales grew 28 per cent at Rs.13,375 crore (Rs.10,469 crore). Its operating profit was at Rs.1,934.54 crore (Rs.1,395 crore) and operating margins were at 15.3 per cent (14.2 per cent). Order inflows during the quarter jumped by 90 per cent to Rs.23,843 crore (Rs.12,517 crore).
Owing to the significantly improved performance in the quarter, L&T's net profit for 2009-10 jumped by 26 per cent to Rs.4,376 crore (Rs.3,482 crore) on 11 per cent higher sales of Rs.36,675.15 crore (Rs.33,646.57 crore).
Various cost optimisation measures taken by the company, aided by lower input costs, led to better profitability of both project and product businesses. The operating margin for the year was up 140 basis points at 13.1 per cent. The board of directors has recommended a dividend of Rs.12.50 per share of Rs. 2 each. Order inflows were up 35 per cent at Rs.69,572 crore (Rs.51,621 crore).
Highest margin
Addressing media here on Monday, L & T Chairman and Managing Director A. M. Naik said, “our operating margins of 13 per cent are the highest in the EPC (engineering, process and construction) industry world-wide and others operate at around half these levels. It is all-time high for us in the last decade. Five years ago, the operating margins were at 8 per cent.'' However, Mr. Naik said these levels were not sustainable and that in 2010-11, margins could slip by about 50 basis points. The company expects a growth of 25 per cent in order inflows and a 20 per cent growth in revenues in 2010-11.
L&T has identified five growth drivers in future. These include power (boiler turbine generators), nuclear power, defense, water and railways. Considering fluctuating input costs, Mr. Naik said the company was trying to build in a price variation clause for the new contracts. He said the power sector was booming and the hydrocarbon sector ‘looks good' due to upstream activity with likely new projects from ONGC, Gujarat State Power Corporations' new platform and exploration activity in the Gulf. He also said urban infrastructure showed promise with realty rates in metros moving up. In railways, a decision on the freight corridor would take shape later this year. Regarding hiring plans, Mr. Naik said the company would be hiring in only new activities of power and heavy engineering. “We will hire around 7,000 people and after attrition, net addition will be around 4,000.''
Regarding the company's capital expenditure plans, Mr. Naik said the investment in the EPC business would be around Rs.200 crore in the next 3-4 years while in the manufacturing business, “we will complete the entire investment of Rs.300-400 crore in the next 3-4 years. The real investment will be in power development which entails an investment of around Rs.40,000-45,000 crore over five years of which equity would amount to around Rs.7,000-8,000 crore. We will limit our investment to below Rs.5,000 crore in all the three segments over five years.''
L&T is considering options to unlock value for three of its subsidiaries. The L&T chief said the company would consider unlocking value of L&T Finance later this year “either through private equity, a merger or listing.''
The company is hoping to grow L&T Infotech's business by 25 per cent this year and “achieve higher valuation in 1-2 years and then take it public. As regards L&T Infrastructure Development, we want to list it only when we are sure we have revenue generating projects. Hopefully, over the next three years, all three companies will be listed.''
