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L&T Q2 results: Profit jumps on higher order inflows

L&T Q2 results: Profit jumps on higher order inflows

Last updated: 28 Oct, 2021 | 08:02 am

L&T Quarterly Results for Q2 (2021-22) Earnings Date, Review & News

Profit above estimates: The net profit of the company increased 54.9% Q-o-Q to Rs 1,819.5 crore in the quarter ending September. The numbers are driven by higher profits in the IT&TS portfolio and improved margins from the projects and manufacturing portfolio. The numbers were above the analyst estimate of Rs 1,776.9 crore.

Revenue rises: Consolidated revenue from operations increased by 18.5% Q-o-Q to Rs 34,772.9 crore from Rs 29,334.7 crore in the Apr-June quarter. The revenue was slightly less than the estimates of Rs 35,513.2 crore. Operating profits were in line with the analyst estimates - they increased by 26% to Rs 3,994.9 crore from Rs 3,171.5 crore in Q1FY22. Analysts have estimated an operating profit of Rs 3,999.4 crore. 

Operating margins and Net working capital: The operating margins for the company increased by 11.5% in Q2FY22 from 10.8% in Q1FY22, slightly higher than analysts' estimate of 11.3%. The Net working capital was 22% in September compared with 26% in the same period last year. L&T paid off Rs 20,000 crore of debt it had taken last year in anticipation of any liquidity issue due to Covid-19.

Higher order inflows: The company received fresh orders worth Rs 42,140 crore in Q2FY22. It was higher than the previous quarter’s fresh orders of Rs 26,557 crore. The consolidated value of the order book stood at Rs 3.3 lakh crore. International orders during the quarter constituted 23% of the total order inflow.

Segment Wise Performance: Except for financial services, all the segments have reported a rise in revenue Q-o-Q. The maximum growth was reported by the Infrastructure and Power segment, revenue increased 34.3% and 46.3%, respectively. The hydrocarbon segment bagged orders worth Rs 14,503 crore and reported growth of 16.2% over Q1FY22.

In Q2FY22, the company saw orders tendering worth Rs 2 lakh crore and awards of Rs 86,000 crore. The management expects the contracts will be awarded in the second half of the fiscal year as some of the states are headed to polls next year.

Management commentary - With the progressive weakening of the second Covid wave and sustained vaccination efforts, the company is positive on the overall business environment and expects this will lead to the Indian economy registering good growth in the medium term.

L&T Q2 earnings: Review

While L&T’s profit is higher as compared to the previous quarter, they are still down 67% as compared to the the previous year. The growth in the bottomline was driven by higher profits in the LT&TS portfolio and improved margins from the Projects & Manufacturing portfolio, even as the Covid-19 induced stress in previous periods progressively wanes out. As compared to the previous quarter, the construction activity as gathered pace, owing to unlocking. The company expects growth in order inflow to be in low-to-mid teens in FY22. 

The company’s margins were also impacted due to raw material costs. While 65% of the contract have pass-through of raw material cost hikes, timing mismatches weighed on L&T during the quarter. Going forward, the company expects higher order inflows in H2, as some states go into polls. The should lead to better revenue and profitability in the upcoming quarters. 

L&T Q2 results: Brokerage take

 Following the results, Dolat Capital has retained a ‘Buy’ rating with a target price of Rs 2,196. The research house noted that the infra segment margin at 8.3% (up 190 basis points YoY) was 110 basis points above its estimates, which reflects L&T’s apt capabilities to tackle commodity headwinds via sustainable cost efficiencies. L&T is poised for ramp-up in execution in the second half with labour availability having come back to desired level in October. Healthy execution, core margin expansion, prudent capital allocation and improving return ratios should drive 20% earnings CAGR over FY21‐24, noted the brokerage. 

Global brokerage firm CLSA has maintained a 'Buy' rating on the stock with a target price of Rs 2,250. While slow infrastructure-segment execution due to labour issues was a key weak spot, the management expects a second half execution pickup with a solid $44 billion book. CLSA noted that the stock is inexpensive, trading at the average engineering and construction PE when the capex cycle may be on the cusp of an upturn.