Larsen & Toubro, the engineering & construction major, registered a standalone earnings growth of 16% for the quarter ended June 2012 to Rs 8635.65 crore. Sales for the quarter was higher by 26% (to Rs 11955.35 crore) on the back of on-time execution of strong orderbook however the operating profit was lower by 5% on the back 300 bps contraction in operating margin to 9.1%. Despite subdued operating performance the strong double digit growth in earning was largely on account of higher other income and lower tax incidence. The company accounted a EO expenses of Rs 38.34 crore towards VRS expenses compared to nil in corresponding previous period excluding this the adjusted net PAT was higher by 19% to Rs 889.55 crore.

• Upside in revenue was largely powered by core Engineering & Construction (E&C) segment as well as others segment (comprising largely of intergraded engineering business). While the segment revenue of E&C was higher by 30% to Rs 10489.76 crore on the back of burnout of strong order book. The Electrical & Electronics (E&E) registered a marginal 2% rise in segment revenue to Rs 760.27 crore on the back of dull industrial offtake and delayed customer clearances. The others was higher by 82% to Rs 363.02 crore. On the other hand the Machinery & Industrial Products (MIP) has registered 17% fall in its segment revenue to Rs 575.29 crore.

• Contraction in operating margin to the extent of 300 bps is largely on account of forex MTM provisioning as well as job mix and inflation. MCO (manufacturing, construction & Operation) cost as proportion to sales net of stocks was higher by 140 bps to 79.1% on the back of retained inflation as well as job mix. The staff cost was nearly flat (down 10 bps) at 7.6%. The other expenses was higher by 170 bps (to 4.6%) on the back of MTM forex loss of Rs 267 crore compared to a gain of Rs 35 crore in the corresponding previous period. Excluding MTM losses the contraction in margin would not be this sharp.

• Upside at EBIT level was also driven by E&C segment as well as Others. Segment profit of E&C was higher by 23% (to Rs 988.29 crore). The 60 bps contraction in EBIT margin has restricted the growth in segment profit of E&C. On the other hand facilitated by 750 bps expansion in EBIT margin the segment profit of others jumped up by 147% to Rs 104.36 crore. On the other hand the segment profit of E&E and MIP was lower by 35% (to Rs 40.36 crore)& 40% (Rs 73.13 crore) respectively hurt by flat/lower sales and contraction in segment margin.

• Other income for the quarter was higher by 125% to Rs 605.84 crore spurred by dividend income from subsidiaries and associates as well as higher treasury income.

• Interest cost was higher by 45% to Rs 228.41 crore and depreciation was higher by 14% to Rs 191.94 crore. The PBT before Exceptional item was up by 16% to Rs 1272.48 crore. The EO (gross of tax) for the quarter was an expense of Rs 38.34 crore compared to nil in the corresponding previous period. EO for the quarter is toward VRS expenses. Thus the growth at PBT (after EO) stood restricted to 13% (to Rs 1234.14 crore). The taxation in absolute terms was higher by 7% to Rs 370.49 crore but the tax rate was lower at 29.1% compared to 31.7% in corresponding previous period.

• Thus spurred, the PAT before EO (net of tax) was Rs 863.65 crore, a rise of 16%. EO (net of tax) was nil for the quarter as well as corresponding previous period. Thus the net profit was up by 16% to Rs 863.65 crore.

Order intake in Q1FY13 up by 21%

Order inflow in Q1FY13 was higher by 21% to Rs 19594 crore with significant part of its being spill over orders of las fiscal. The major orders came from Infrastructure, Building & Factories and Power Transmission & Distribution sectors.

Order Book of the company as end of June 30, 2012 stood higher by 12%yoy to Rs 153095 crore, translating into 2.88 times of its FY12 revenue. The Order Book of the E&C segment stood at a healthy Rs 150656 crore as at June 30, 2012.

Other developments

The Company, during the quarter ended June 30, 2012, has allotted 3,80,562 equity shares of Rs 2 each, fully paid up, on exercise of stock options by employees, in accordance with the Company's stock option schemes.

Outlook

Delayed policy measures, slow-down in industrial production, elevated interest rates and liquidity concerns have moderated the growth prospects in the domestic economy. This together with the uncertainties in the global markets, have impacted the investment sentiment, restricting thereby the business opportunities for capital goods industry.

Going forward, the ensuing months could witness renewed focus on economic reforms for improving the investment momentum and attracting capital inflows.

On the international front, select markets in the Middle East, South East Asia and CIS countries hold promising prospects, where the Company is strengthening its presence.

With its enhanced capacities and presence in the diverse sectors, the Company is in a good position to harness the opportunities as they emerge. The superior execution capabilities and growing order book provide visibility to sustained revenue growth in the medium term.

The stock hovers around Rs 1374.50.

Larsen&Toubro: Results

Larsen & Toubro: Segment Results