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L&T: Gaining momentum

May 29, 2001

Driven by a sharp 61% jump in fourth quarter profits, L&T has been able to end the year with only an 8% drop in net profits. The fourth quarter marks a turnaround for the company, which until the third quarter was witnessing declining profitability. The improvement in bottomline has been led by its cement division which has benefited from the significant rise in realisations.

(Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
Gross Sales 23,763 24,797 4.4% 74,238 78,254 5.4%
Other Income 1,091 918 -15.9% 1,753 2,097 19.6%
Expenditure 21,621 21,631 0.0% 66,040 70,220 6.3%
Operating Profit (EBDIT) 2,141 3,166 47.8% 8,198 8,034 -2.0%
Operating Profit Margin (%) 9.0% 12.8%   11.0% 10.3%  
Interest 588 543 -7.6% 3,324 3,613 8.7%
Depreciation 899 850 -5.5% 2,932 3,131 6.8%
Profit before Tax 1,746 2,691 54.2% 3,696 3,387 -8.4%
Other Adjustments       126 0  
Tax 191 187 -2.1% 405 236 -41.6%
Profit after Tax/(Loss) 1,555 2,504 61.1% 3,416 3,151 -7.8%
Net profit margin (%) 6.5% 10.1%   4.6% 4.0%  
No. of Shares (eoy) 249.0 249.0   249.0 249.0  
Diluted Earnings per share#* 25.0 40.2   13.7 12.7  
*(annualised)            

The company's EPC division has continued to perform well despite the sluggishness in domestic investment activity. The company presently has a healthy order backlog of Rs 90 bn. Another initiative that has augured well for the EPC division has been the focus on the export markets. L&T has procured some 'prestigious' orders in the Middle East, Europe and Sri Lanka.

L&T continues to be optimistic that the government would continue its thrust on developing infrastructure and core sectors. This will augur well for both its EPC and cement divisions. The company has not stated anything on the developments pertaining to the demerger of its cement division.

Our projections for L&T are quite divergent from actual results (we were projecting a 24% decline in profits for the full year). This is mainly due to the fact that late in year 2000, it was still unclear whether the cartel in the cement sector will hold up. We were thus cautious on the profitability of the cement sector.

L&T's press release is not clear on the extent to which the EPC division contributed to the sharp spurt in profits in the fourth quarter (it is anticipated to be significant). Once the details become available a clearer picture will emerge.

At its current price of Rs 250, L&T trades at a P/e multiple of 19.8x.


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