L&T's Q2 performance cheered by Street; stock gains 3 percent

28 Oct , 2021 By : Kanchan Joshi

The September quarter earnings of capital goods and engineering major Larsen & Toubro (L&T) were largely in line with expectations. The key highlights included a 12% year-on-year revenue growth in its core business. Reacting to the earnings, shares of the company rose more than 3% intraday on the NSE on Thursday.

Operating performance of its core business was aided by operating leverage, leading to a sequential Ebitda margin growth of 30 basis points to 9.2%. Ebitda is short for earnings before interest, tax, depreciation and amortisation. One basis point is one-hundredth of a percentage point.

However, there was disappointment on the execution front as it faced bottlenecks in international supply chain disruptions, change in labour mix and cyclone Tauktae impacting Maharashtra and Gujarat. However, the company's management said it has reached a 260,000 labor availability at present and is well on track for delivering pre-covid level of execution.

Meanwhile, its order book grew 11% year-on-year in Q2FY22 to Rs3.3trillion with the order book/revenue ratio at 3.2 times. Overall order inflows grew 50% y-o-y to Rs42,100 crore. In a post-earnings conference call, the management indicated a healthy prospect pipeline of Rs6.83 trillion, up 12% y-o-y. This is spread across domestic and international. It further said that the infrastructure segment order prospects stood at Rs5.3 trillion spread across buildings and factories, heavy civil, transportation, water, power T&D. Hydrocarbon prospects stand at Rs1.2 trillion with significant proportion from international geographies, the management added.

So far in this year the stock has risen 42%, beating Nifty50's 21% returns in the same span. Going ahead, apart from the trajectory of order inflows, commentary on monetisation of non-core assets, will be key for the L&T stock, analysts said. The company’s management said that it is continuously exploring offloading stake in Nabha power and IDPL. Also, it expects to reach some closure on Hyderabad metro refinancing by March 2022.