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L&T: Operating profits dip, net up - Views on News from Equitymaster
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  • Jan 25, 2002

    L&T: Operating profits dip, net up

    L&T has posted a 10% drop in operating profits for the quarter ended December 2001. The company's topline has remained flat even as operating costs posted a marginal increase. This divergence resulted in lower operating margins.

    (Rs m) 3QFY01 3QFY02 Change
    Gross sales 19,412 19,230 -0.9%
    Other Income 219 348 58.9%
    Expenditure 17,272 17,322 0.3%
    Operating Profit (EBDIT) 2,140 1,908 -10.8%
    Operating Profit Margin (%) 11.0% 9.9%  
    Net Interest 1,208 808 -33.1%
    Depreciation 789 824 4.4%
    Profit before Tax 362 625 72.7%
    Tax 29 80 175.9%
    Profit after Tax/(Loss) 333 545 63.7%
    Net profit margin (%) 1.7% 2.8%  
    No. of Shares (m) 248.7 248.7  
    Diluted Earnings per share* 5.4 8.8  
    P/E Ratio   22.0  

    Given the continued weakness in the investment activity in the economy, the company's drive into international Engineering & Construction markets seems to be yielding results. While exports have risen 31% in the third quarter to Rs 3.9 bn, order backlog has also gone up significantly by 32% for the first nine months of the current fiscal. However, revenues from EPC division in the domestic market fell by 2%. According to the company’s press release, L&T has been successful in getting contacts in several advanced countries. The cement business too has performed well in the first nine months of the year. A control on costs and better price realisations owing to cartelisation by manufacturers benefited this division.

    But on the other hand, cement sales in the domestic as well as the exports market have risen 5% and 8% respectively. Thanks to the cartelisation effort, average realisation per tonne has increased by 14% to Rs 1,318.

    Despite the drop in operating margins, L&T has posted a 64% rise in net profits. This is largely due to a 33% drop in net interest expenditure. The decline in interest expenditure has been made possible by restructuring the debt portfolio. The growth in depreciation too was subdued at over 4%.

    However, the electrical and electronics business continues to be a problem area, as sales have stagnated and margins have come under pressure. The company is launching several initiatives including cost control and export thrust to turnaround this division.

    L&T presently trades at Rs 193, implying a P/E multiple of 22x.



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