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L&T Q1 preview: Analysts see healthy revenue growth on strong order execution

First quarter of the financial year 2019-20 (Q1FY20) has been a subdued period for the capital goods players due to slower pace of order awards owing to general election coupled with muted private capex. However, Larsen & Toubro (L&T), the engineering & construction major, is expected to report healthy numbers when it declares its results later in the day, led by strong growth in Infrastructure, Hydrocarbons and IT services businesses. 

Analysts at Centrum Broking projects L&T's revenue to grow 15.4 per cent year-on-year (YoY) to Rs 32,636.6 crore as against Rs 28,283.5 crore in the corresponding quarter of the previous fiscal. EBIDTA (earnings before interest, depreciation, tax and amortisation) is likely to increase 19.2 per cent YoY to Rs 3,472.8 crore against Rs 2,913.3 crore logged in the year-ago period.

EBIDTA margin, or operating margin, is estimated to rise 34 basis points (bps) YoY to 10.6 per cent from 10.3 per cent, while PAT (profit after tax) / net profit is expected to grow 35.3 per cent YoY to Rs 1,643.7 crore. L&T had posted net profit of Rs 1,214.8 in the year-ago quarter.

"Other income is likely to remain elevated YoY though it is likely to decline QoQ due to utilisation of surplus cash for Mindtree stake purchases. We build up a normalised tax rate of 31 per cent as compared to 43.5 per cent in Q1FY19 which should aid earnings growth," they wrore in an earnings preview note. 

During Q1FY20, L&T has received order inflows in the range of Rs 13,000 crore to Rs 21,500 crore, which includes more than Rs 2,500 crore in hydrocarbon, more than Rs 7,000 crore in power, more than Rs 3,500 crore in water & effluent treatment segment.

"L&T’s order backlog suggests better execution rate in domestic market in Q1FY20E and FY20. Consequently, we expect L&T’s standalone revenue to grow 10.2 per cent to Rs 16,716.2 crore. EBITDA is expected to grow 13.5 per cent to Rs 1,405 crore with margin expected to improve 20 bps to 8.4 per cent and adjusted PAT expected to grow 3.8 per cent at Rs 944.5 crore impacted by tax rate," said analysts at ICICI Securities in a result preview note.

At the bourses, shares of L&T have outperformed the market by surging 12 per cent in the quarter ended June 30. The benchmark S&P BSE Sensex has gained merely around 2 per cent during the period while the S&P BSE Capital Goods index has risen over 7 per cent.

Edelweiss Securities notes that despite the challenging environment, working capital of the company improved 200 bps (up 18 per cent in FY19) and healthy order book would enable it to comfortably meet FY20 guidance - 10–12 per cent order inflow and 12–15 per cent revenue growth. "We expect 8 per cent YoY growth in core EPC revenues led mainly by the infra segment. Services businesses are expected to grow healthy at 15 per cent. Key monitorables include working capital and order inflow," it says.