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Tuesday, November 8, 2011

L&T stuns St, says competition hot as orders vanish

This story first appeared in DNA Money edition on Saturday October 22, 2011.

Larsen & Toubro (L&T) on Friday cut its order growth guidance to 5% from the 15% it had envisaged at the beginning of this fiscal, citing a slowdown in investment momentum and cut-throat competition for orders.

R Shankar Raman, chief financial officer, L&T said the reassessment was necessitated as decisions related to new projects were being deferred. “At the moment, our best guess is that the conditions are going to remain as challenging as they are today and it is quite likely that the growth will be around 5% rather than the targeted 15% earlier,” he said.

The engineering and construction industry has seen considerable slowdown in investment momentum in the last 6-8 months.
Adding to the troubles is the competitive business environment wherein fewer projects are coming up and as such are being fiercely fought for.

“As a result, win rates are dropping for all the participants in the sector and L&T is no exception. Considering this situation and the policy initiatives that are required to be taken to fast-track some of these investment programmes and the confidence that has to be re-found in the business community, we do think we will lose much of the remaining six months in this process of discovery,” said Raman.

As for the engineering and construction behemoth’s revenue growth outlook of 25% for this fiscal, the management said revenue visibility was better than accretion in the order pipeline since 82% of its revenues came from the order backlog.

“Our assessment tells that we should be able to maintain the guidance in so far as the revenue is concerned. The 15-18% of fresh orders that we were banking on to be able to get the revenues up to its full 100% level, despite the correction in the order inflow that we are accessing today, we think should survive. Hence, our assessment now is that the revenue guidance should stay,” said Raman.

For the quarter ended September, the management said new orders fell 21% to `16,096 crore while the total order book was at Rs142,185 crore. Net sales for the quarter were up 19.3% at Rs11,245 crore, while net profit rose 15% to Rs798 crore, including extraordinary gains of `70.8 crore from sale of shares in Mahindra Satyam.

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