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L&T: Disappointing quarterly performance

Jul 22, 2000

Larsen & Toubro has posted a sharp decline in net profits during the quarter ended 30th June 2000. The company has suffered from a drop in operating margins in all three major divisions viz. cement, EPC and electrical business group. The slow growth in topline has also contributed to its bad performance. The company, in a presentation to analysts, insisted that it quarterly performance is within their expectations. The company also stated that historically L&T's profits vary in greatly from quarter to quarter owing to the uneven flow of large EPC contracts.

(Rs m) 1QFY00 1QFY01 Change
Net Sales 15,919 16,634 4.5%
Other Income 157 326 107.2%
Expenditure 13,691 15,165 10.8%
Operating Profit (EBDIT) 2,227 1,468 -34.1%
Operating Profit Margin (%) 14.0% 8.8%
Net Interest 837 838 0.1%
Depreciation 659 751 14.0%
Profit before Tax 888 206 -76.8%
Tax 96 17 -82.3%
Profit after Tax/(Loss) 792 189 -76.2%
Net profit margin (%) 5.0% 1.1%
No. of Shares (eoy) (m) 249.0 249.0
Diluted Earnings per share* 12.7 3.0
*(annualised)

Among the other factors that give cause for concern is the fact that the order book position of the EPC division has actually declined by 13% during the quarter. This highlights the fact that investment activity is yet dull. This has contributed greatly to the lower margins as competition has become more intense. The cement business has performed well in terms of volumes (up 18%). However, net realisations have declined by 7%. The company has stated that over the last few days there has been a significant recovery in prices in all but the eastern region.

L&T has stated that they have finalized the process of identifying the investment bankers for the purpose of proceeding with the restructuring of the company's business, relating to the cement division. They anticipate that the process of hiving off the cement division into a subsidiary would be over within 8 months.

The company currently trades at Rs 202 , implying a P/e multiple of 66x.

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