Larsen & Toubro – Disappointing results (Analyst Meet)

Larsen & Toubro (L&T) has announced a 27% decline in net profits during the year ended 31st March 2000. The decline in profits has come about mainly due to stagnant topline growth and a substantially higher interest cost. At the operating level, however, cost control measures have helped improve margins.

(Rs m)	FY99	FY00	Change
Net Sales	72,915	74,238	1.8%
Other Income	1,101	1,753	59.3%
Expenditure	65,316	66,040	1.1%
Operating Profit (EBDIT)	7,599	8,198	7.9%
Operating Profit Margin (%)	10.4%	11.0%
Interest	1,607	3,324	106.9%
Depreciation	2,681	2,932	9.3%
Profit before Tax	4,411	3,696	-16.2%
Other Adjustments	811	126
Tax	515	405	-21.4%
Profit after Tax/(Loss)	4,707	3,416	-27.4%
Net profit margin (%)	6.5%	4.6%
Earnings per share	18.91	13.74	-27.3%

The E&C division (59% of revenues) saw its revenues decline 2%. This contributed in a significant manner to the overall sluggishness in topline growth. Margins too took a knock, declining from 13% to 12%. The management has stated that such margins in the division were unsustainable and were expected to come down over a period of time.

The cement division (26% of revenues) too witnessed trying times during the year. Even as the company continued to rev up volume sales, revenues grew only at a slower pace due to continued pressure on realisations. However, due to the stringent cost control measures implemented by the company, operating margins jumped 4% to 15% during the year. The company has stated that it plans to further improve on these margin levels.

The management expects the company’s performance in FY01 to improve on the back of increased sales in the E&C division and better operating margins in the cement division. Further, the restructuring exercise that is in full swing is expected to generate synergies that will further benefit the company in terms of better margins.

L&T’s latest full year performance is likely to disappoint on many counts. However, the restructuring exercise initiated by the company is likely to whet the appetite of investors. The stock currently trades at Rs 209, implying a P/E multiple of 15x.