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L&T: Cement disappoints - Views on News from Equitymaster
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  • Aug 1, 2002

    L&T: Cement disappoints

    L&T, the EPC and cement major, has announced poor 1QFY03 results. The company reported a 31% drop in net profits while total revenues have grown by 15% YoY. L&T faced pressure on cement realisations, which has depressed revenues from this division. Bottomline has also been impacted due to exposure to low margins EPC businessess.

    (Rs m) 1QFY02 1QFY03 Change
    Net Sales 18,310 21,122 15.4%
    Other Income 457 462 1.2%
    Expenditure 16,155 19,558 21.1%
    Operating Profit (EBDIT) 2,154 1,564 -27.4%
    Operating Profit Margin (%) 11.8% 7.4%  
    Interest 942 593 -37.1%
    Depreciation 818 781 -4.4%
    Profit before Tax 851 652 -23.4%
    Extraordinary items (80)    
    Tax (121) (206) 70.8%
    Profit after Tax/(Loss) 651 446 -31.4%
    Net profit margin (%) 3.6% 2.1%  
    No. of Shares 249.0 249.0  
    Diluted Earnings per share* 10.5 7.2  
    P/E Ratio   22.2  
    (* annualised)      

    L&T has attained 8% volume growth from cement business, while total sales have declined by 9% on account of poor realisations. The company has also reported that cement realisations have fallen by over 17% on a YoY basis. Electrical and electronics division of the company reported a flat growth in sales but has managed to improve operating margins.

    The EPC business of the company has performed well contributing a major share to topline growth. The EPC division reported a near three fold jump in export sales. According to the company the EPC division saw a revival in orders from the hydrocarbon and infrastructure sectors. Revenues from this division grew by a considerable 37% and contributed to 57% of the company's total turnover.

    L&T has been able to reduce its interest expenses by a considerable amount of Rs 350 million indicating a 37% fall in the same. Though the topline has risen considerably the operating margins have fallen by 440 basis points due to a considerable slide in realisations. Operating costs have increased due to higher volumes. Operating expenses of the company have risen by 21% on a YoY basis. Increase in operating expenses has been mainly on account of a 61% increase in the raw material consumption of the company.

    The stock is currently trading at Rs 159 on a P/E multiple of 22x its 1QFY03 annualised earnings. The EPC division of the company is going through a rough time due to a lack of spending in the domestic capital goods sector from which it derives a majority of revenues. L&T has been able to mitigate this effect to a certain extent by agressively focussing on export markets. The exports thrust seems to be finally paying off but it is a long way before the revenue mix can be changed in favour of exports. The cement division of the company has been enjoying good growth driven by volumes in the recent past, but a drastic drop in realisations has meant that it will be a while before investment in cement business bears fruit. Going forward the topline is likely to be robust but bottomline is likely to be under pressure due to poor realisaions of the cement division.



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