The COVID-19 lockdown in India has brought construction activities to a halt in the peak season, a move that will hurt revenues of engineering and construction major Larsen and Toubro (L&T), according to analysts.
“We note that March is a peak month for construction activities in India. Even post the lockdown, there might be some more delays in resuming construction activities in full swing as labour, machinery and materials would need to be re-mobilised. Thus, we see a clear risk to our revenue growth assumptions for the fourth quarter of FY20 as well as FY21 estimates,” Motilal Oswal said in a research note to its clients.
The brokerage has cut FY21 and FY22 earnings by 20% and 14% respectively and the target price to ₹1,320 crore.
March activity
Historically, the month of March is marked by higher execution and payments from government authorities, which brings down the closing working capital for the year. However, the fourth quarter of FY20 will not see execution as well as payment push.
Moreover, L&T would have to continue supporting its vendor base, including sub-contractors, in these tough times, as it has been doing over the past many months. This is likely to increase its working capital further.
Besides, the oil price crash is likely to weaken the prospects of the hydrocarbon segment in the near term, according to analysts.
The hydrocarbon segment has been a key driver of execution and earnings since the last 4 years for L&T with the highest ever order book and double digit margins.
