L&T’s new investments guzzle funds; Q2 net profit rises 32%

THE country's largest engineering company Larsen & Toubro (L&T) announced somewhat less-than-expected growth in profit at 32% for the September quarter due to fresh investments in new businesses.
    The company's net profit during the quarter went up to Rs 460.2 crore from Rs 348 crore a year ago. Net sales grew 40% to Rs 7682.2 crore. The operating profit rose by 34% to Rs 603.77 crore during the same period. The total expenditure went up 40% to Rs 7082.5 crore. It's operating margins shrunk from 9.8% a year earlier to 8.9% due to increased spending on recruitments for a railway wheel factory and shipyard.
    The market was not satisfied. The shares of L&T slipped by 12% to Rs 884.7 at the BSE on Wednesday, the biggest drop since July 20, 2000. The stock has fallen 56% this year, compared to the 47% drop suffered by the benchmark index, on concerns that orders may slow down, with the global credit crisis holding up project financing.
    On future outlook, L&T expressed confidence about meeting its financial goals for the current year, given the quality of its order book and the brisk inflow of orders. It is closely monitoring the developments in the global financial markets and the impact on its growth plans in the medium term. "We'll review the numbers if the situation deteriorates further," CFO Mr Y M Deosthalee said.
    The company secured fresh orders worth Rs 12,453 crore during the quarter, a 74% y-o-y growth, amid an environment of global financial turmoil and domestic slowdown. "The share of order inflow and sales from international business, at 21% and 19% respectively, bears testimony to the company's growing presence in the international market," it said. L&T's net profit for the half year ended September grew by 33% to Rs 962.7 crore and net sales went up by 45% to Rs 14583.63 crore.
    Mr Deosthalee said the company will execute large projects involving huge margins. The order book stood at Rs 63,000 crore as on September 30, with orders from the hydro carbon, infrastructure and power businesses. The revenues from new business such as shipping, power and railways will flow in by March 2010. The company has not planned any major capex spends on the nuclear sector.
    Regarding the railways business, particularly tracks and signalling, Deosthalee spoke about the company's presence in the signalling segment, but admitted that this generated minuscule revenues. "We have recruited experts from railways as part of our focus on this segment. However, revenues from this business will start flowing in only by March 2010," he said.
VITAL STATS
Net profit during the quarter rose to Rs 460.2 cr from Rs 348 cr a year ago
Operating profit rose by 34% to Rs 603.77 cr
But operating margins have shrunk to 8.9%
Net profit for the half year ended September grew by 33% to Rs 962.7 cr