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L&T: Performance driven by cement

Oct 24, 2001

L&T has posted a sharp jump of 223% in profits during the second quarter ended 30th September 2001. The improvement in performance is driven by an expansion in operating margins and a decline in net interest expenditure. However, growth in sales in 2QFY02 was sluggish in account slower growth in EPC revenues.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Gross Sales 17,412 17,758 2.0% 34,046 36,068 5.9%
Other Income 633 693 9.4% 960 1,150 19.8%
Expenditure 16,151 16,308 1.0% 31,317 32,464 3.7%
Operating Profit (EBDIT) 1,261 1,450 15.0% 2,729 3,604 32.1%
Operating Profit Margin (%) 7.2% 8.2%   8.0% 10.0%  
Net Interest 1,024 902 -11.9% 1,862 1,844 -1.0%
Depreciation 742 818 10.2% 1,493 1,635 9.5%
Profit before Tax 128 424 231.4% 334 1,275 282.2%
Tax 3 19 - 20 220 -
Profit after Tax/(Loss) 125 405 223.9% 314 1,055 236.4%
Net profit margin (%) 0.7% 2.3%   0.9% 2.9%  
No. of Shares (eoy) (m) 249 249   249 249  
Earnings per share* 2.0 6.5   2.5 8.5  
*(annualised)            

The star performer is the cement division, which incidentally the company plans to hive off into a subsidiary. Production and sale of cement during the aforesaid quarter have increased by 7.6% and 5.1% respectively. Average realisation for the first half of the current financial year has increased sharply by 18.3% to Rs 1,357 per tonne. Cartelisation has clearly benefited the company in 1HFY02 and one can expect a slower growth in realisation for the rest of the year in light of a subdued demand scenario. The company expects a growth of 5%-6% in cement demand and consequently the cement prices are likely to be stable. The Durgapur grinding unit project is expected to be commissioned by the end of December 2001 and would increase the cement capacity to 16 million TPA.

On the other hand, sluggish industrial production and slower GDP growth has affected the EPC division of the company. Nevertheless, given the leadership position of the company, it has register a 12% growth in EPC contracts by Rs 30 bn. The segment achieved revenues of Rs19 bn, accounting for 52% of the company’s total sales & service income. The sales figure reflects sluggish growth, mainly due to the job mix of order backlog getting skewed in favour of long-cycle jobs and some large orders bagged late last year still at initial execution stage.

Net profit for 1HFY02 stood at Rs 1,055 m, a growth of 236% as compared with the corresponding period of the previous year. This was primarily led a 200 basis points increase in margins and a fall in interest costs, which has been slowing profit growth until now.

The scrip is currently trading at Rs 164 at a P/E multiple of 19.5x annualised 1HFY02 earnings.


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