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L&T: Focus pays

Aug 1, 2003

L&T, the engineering and cement major, has reported a 10% growth in its topline for the 1QFY04. The net profits of the company increased by 86.6% as a result of a strong rise in the other income and reduction in the interest expenses. Operating margins however continue to remain under pressure.

(Rs m) 1QFY03 1QFY04 Change
Net Sales 19,458 21,357 9.8%
Other Income 443 715 61.4%
Expenditure 17,934 19,930 11.1%
Operating Profit (EBDIT) 1,524 1,427 -6.4%
Operating Profit Margin (%) 7.8% 6.7%  
Interest 594 346 -41.8%
Depreciation 757 741 -2.1%
Profit before Tax 616 1,055 71.4%
Extraordinary items 36 139  
Tax 206 363 76.2%
Profit after Tax/(Loss) 446 831 86.6%
Net profit margin (%) 2.3% 3.9%  
No. of Shares 155.1 155.2  
Diluted Earnings per share* 11.5 21.4  
P/E Ratio   13.3  
(* annualised)      

Growth in the topline was spearheaded by the engineering and construction division, which accounted for 57% of the total topline of the company in the June quarter. Growth in this division stood at 12%, as compared to the same period in the previous year. The cement division which is to be demerged and sold to Grasim, staged a small recovery on the back of improved sales realizations as its revenues rose by 6% in comparison to the corresponding period in the previous year. The electrical and electronics segment also showed improved performance as its revenues increased by 23% as compared to the same period in the previous year.

Although the overall operating margins decreased marginally by 1%, the cement division managed better operating margins of 22% as compared to 17% in the same quarter of the previous year. This was achieved mainly because of sales realizations, which improved by 3.9%. The operating margins of the electrical and electronics segment however remained stable. We believe that the company is facing pressure on the operating margins of its EPC division.

The other income of the company increased substantially by 61% and the company also managed to prune its interest costs by a healthy 42% as compared to the same period in the previous year. The bottomline of the company grew by almost 87% mainly due to falling interest expenses.

The stock is currently trading at 285 with a P/E of 13x, its annualized FY04 earnings. The company EPC order book stands close to 2x its annual FY03 EPC business revenues and hence post the demerger L&T is not likely to have any difficulty in maintaining a healthy topline growth. Operating margins however, may continue to face pressure going forward. Hence post the demerger L&T is likely to emerge as a stronger EPC player with strong cash flows due to the resultant focus. L&T is likely to attract further investor attention going forward due to these reasons.


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