The quarter ended June 30 was a tricky one for capital goods firms in India since uncertainty prevailed with respect to new orders from government agencies due to the general election held during the period.

Despite this uncertainty and a slowdown in private-sector capital expenditure, India’s largest engineering and capital goods company Larsen and Toubro (L&T) put up a good show in the first quarter of FY19-20. Mumbai-headquartered L&T reported a consolidated gross revenue of ₹29,636 crore from continuing operations, up 10% year-on-year. The company’s net profit (from continuing operations) in the same period rose 20.5% year-on-year to ₹1,361 crore. Continuing operations refer to all of L&T’s business operations excluding its electrical and automation business, which is in the process of being sold to Schneider Electric.

L&T’s earnings for the April-June 2019 quarter came in broadly in line with Street expectations on the bottomline. An earnings preview report by Motilal Oswal had estimated L&T’s profitability to grow by 17% to ₹1,400 crore. Including the profit after tax from discontinued operations, L&T’s net profit came in at ₹1,473 crore.

The company successfully won new orders worth ₹38,700 crore at the group level during the quarter, registering a growth of 11%. International orders constituted 23% of these fresh orders. With this, L&T’s total order book, as on June 30, stood at ₹2.94 lakh crore, up 9% year-on-year, with the share of international order remaining flat at 21%.

The company’s EBITDA (earnings before interest, tax, depreciation and amortisation) rose 20% to ₹3,319 crore. Speaking to the media post the announcement of its earnings, L&T’s chief financial officer R. Shankar Raman said that the company had “performed well and as per plan” and its profitable growth was a positive signal. L&T’s EBITDA margin rose to 11.2% for the quarter ended June 2019 from 10.2% in the same quarter of the preceding fiscal. The operating profit margin reported by the company came in slightly lower than the 11.5% that analysts at Motilal Oswal had estimated. But the order inflows reported by the company was higher than the ₹35,000 crore expected by the domestic brokerage.

Fresh orders received by L&T’s infrastructure vertical declined 10% year-on-year to ₹17,497 crore due to a higher base effect from last year. Revenue from this business grew 14% year-on-year to ₹13,865 crore due to “good execution progress across business verticals of the segment,” the company said in its earnings statement. EBITDA margin of the segment was lower at 6.4%, compared to 6.8% in the first quarter of FY2018-19 largely due to “job mix and seasonality of execution.”

Shankar Raman stated that L&T managed to ramp up fresh orders despite the elections held during the quarter. “We weren’t sure about the disruption that the elections would cause but credit to the agencies who went ahead with the awarding of the contracts,” he said.

L&T’s power segment secured orders worth ₹6,700 crore during the quarter, registering a significant growth on account of a large domestic order for EPC (engineering, procurement and construction) work for a new thermal power plant being planned in Bihar. Shankar Raman said that the company had won a large power EPC order after a long time. Revenue from this business should pick up by the third or fourth quarter of this fiscal when work on some new orders progress further, Shankar Raman said. He also hoped that a few new contracts may be awarded out soon which could lead to new business opportunities for the engineering company.

L&T’s management retained its guidance of 10-12% growth in order inflow and 12-15% sales growth in FY20, but also indicated that the company expected private sector capex to remain subdued for the next 12-15 months.

“The conclusion of the general elections has led to a pro-incumbency mandate received by the government and has created an environment of political stability which bodes well for policy continuity, fiscal rectitude and focus on infrastructure build-out,” L&T said in its statement issued on Tuesday after market hours. “The company looks forward to a period of increased investment momentum and continued growth. Initiatives towards improved productivity, cost efficiencies derived from leveraging digital technology, capacity utilisation and capability enhancement are expected to help the company maximise its shareholder returns (RoE) on a sustainable basis.”

L&T’s share price closed 0.44% higher at ₹1,410 per share on the BSE on Tuesday. The benchmark S&P BSE Sensex shed 0.13% to end at 37,982.74 points on the same day.

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