Stock Review: L&T

IT'S a season of surprises. While some of the biggest names in corporate India have stumbled this earnings season, Larsen & Toubro, engineering, construction and manufacturing behemoth closed the year with a rather good set of numbers in the fourth quarter. The company surprised the Street by holding on to margins of 13.7 per cent for the full year in the engineering and construction business, even as prices of raw materials increased substantially. Analysts were expecting margins to come in lower than 13.6 per cent due to an unfavourable revenue mix and ahigh base of the previous year. The management says the company could hold on to margins, thanks to appropriate risk mitigation strategies, superior execution of projects and astute management of costs.

The company reported revenues of Rs 15,213 crore in the fourth quarter, clocking a year-on-year growth of 13 per cent. Revenues for the full year grew 19 per cent y-oyto Rs 43,886 crore. Order inflows grew 27 per cent during the quarter, which helped the company record an order book position of Rs 130,217 crore at the end of March 31. Despite some infrastructure and power projects being deferred, order inflows increased 15 per cent in FY11.

Analysts were expecting some negative surprises in the company's fourth quarter results as order flows had come to a standstill. However, in the engineering and construction segment, order inflow peaked at Rs 28,526 crore in the quarter ended March 31, registering a growth of 29 per cent over the corresponding quarter of the previous year. Major orders during the quarter came from minerals & metals and building & factories sectors. Order inflow of the segment grew 14 per cent to Rs 73,013 crore.

The electrical and electronics segment did not fare too well as the demand remained sluggish in the international markets and stiff competition hurt domestic growth. This segment's customer sales grew 5 per cent to Rs 2,987 crore.

The road ahead isn't going to be easy, and L&T realises this. The company has stated that "while completion of the several expansion projects underway will strengthen the company's position of pre-eminence in its various businesses, intense competition and spiralling input costs may exert some pressure on the operating margin." Analysts believe there is a risk on the volume side as there are chances that companies may not undertake capex plans. Ajay Parmar, head of research at Emkay Global, adds: "The order book position of engineering companies are showing a slowdown even as the market is bullish on capex cycle in FY12-13. However, this is not reflecting in the order books of companies."