Slowdown impacts L&T order book

Firm may miss guidance on order flow

Engineering and construction major Larsen & Toubro (L&T) is likely to miss its FY20 order inflow guidance of 10-12%, reflecting the economic slowdown.

The company has received just four orders in the third quarter so far, with three of them worth below ₹2,500 crore each and just one contract worth over ₹7,000 crore.

The company had won orders worth ₹1,76,834 crore at the group level during the year ended March 31, 2019, registering a growth of 16% over the previous year.

On a cumulative basis, L&T’s order inflow for the half year ended September 30, 2019 stood at ₹86,992 crore, meaning that the company will have to bag orders of over ₹1 lakh crore in less than four months, to maintain its guidance of 10-12%

According to L&T MD & CEO S.N. Subrahmanyan, the company is anticipating some big orders but client decisions on orders are getting pushed for one reason or the other. “The capital expenditure in the private sector is not happening except for airport, and government orders are taking time,” said Mr. Subrahmanyan.

“It looks difficult… to bag ₹1 lakh crore of orders in less than four months when the company could not do it in the first eight months,” said a Mumbai-based analyst.

L&T Group CFO R. Shankar Raman is, however, optimistic about meeting the order inflow guidance of 10-12%.

While new orders are hard to come by, execution of existing orders are also likely to get delayed. After Andhra Pradesh, the new government in Maharashtra is reviewing major infrastructure projects including the Mumbai-Nagpur Samriddhi Corridor, Coastal Road Link, Trans-Harbour Sea Link and Thane Creek. Besides, the bullet train project and Nanar Refinery in Ratnagiri have also been kept on hold.

L&T has total exposure of about ₹42,700 crore in Maharashtra, or 14% of the total order book and any delay is likely to impact L&T’s execution cycle.

Sharekhan by BNP Paribas, however, expects the near-term uncertainties to iron out and has maintained its ‘buy’ rating on the stock.

“L&T’s strong order backlog, excluding stalled projects, are expected to lead to healthy execution during FY2020- FY2021. We have currently maintained our earnings estimates for FY2020-FY2021, awaiting clarity on big ticket-size project tendering. We expect the government’s thrust on infrastructure investment to remain and expect revival in project tendering as early as Q4FY2020,” wrote Sharekhan by BNP Paribas in its research note.

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