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L&T Q3 preview: Analysts see a cut in order inflow guidance for FY20

A significant slowdown in government orders, coupled with muted private capex, is likely to have hit order inflows for most engineering and capital goods companies, including industry heavyweight Larsen & Toubro (L&T), during the third quarter of the current financial year (Q3FY20). While a strong execution momentum is expected to continue for L&T in the heavy engineering, hydrocarbon and domestic infrastructure segment, a weak backlog in the international infrastructure segment could drag overall infra segment growth, say analysts.

L&T will announce its financial result for the October-December quarter on Wednesday (January 22).

During the quarter under review, L&T’s order inflows were in the range of Rs 3,000 crore to Rs 7,500 crore, which remained soft and included orders across heavy civil infrastructure, power transmission & distribution (T&D), water and the effluent treatment and transportation infrastructure business (Dhanbad Urban Water Supply Scheme), an expressway in Qatar, and Rishikesh-Karnaprayag tunnel-2 package from Rail Vikas Nigam (RVNL), says ICICI Securities. L&T’s order backlog suggests a better execution rate in the domestic market in Q3FY20E, it adds.

The brokerage expects L&T’s adjusted standalone revenue (excluding electrical & automation discontinued operations) to grow 9.2 per cent to Rs 22,990.0 crore for the quarter. Earnings before interest, tax, depreciation, and amortisation (Ebitda) is expected to grow 5.8 per cent to Rs 2,034.6 crore, with margin expected at 8.8 per cent, and adjusted profit after tax (PAT) growth of 8.2 per cent to Rs 1,534 crore (adjusting for exceptional items and aided by corporate tax rate cut benefit).

Edelweiss Securities expects L&T to cut its order inflow guidance for FY20. “L&T’s order inflow guidance could be cut, given that merely around Rs 5,000 crore worth of orders were announced in Q3 (an H2FY20 order inflow ask of Rs 85,000 crore to meet management guidance),” it said.

Analysts at Emkay Global Financial Services, too, expect the company to trim its order inflow guidance for FY20. They see 18.4 per cent year-on-year (YoY) growth in L&T's revenue to Rs 40,540.7 crore. Sequentially, the numbers are expected to rise 14.8 per cent. Ebitda is seen growing 20.2 per cent YoY and 12.1 per cent quarter-on-quarter (QoQ) to Rs 4,509.7 crore, while Ebitda margin is expected to rise 17 basis points (bps) YoY to 11.1 per cent. On a QoQ basis, margin is expected to fall by 26 bps. PAT is expected to see 21.6 per cent YoY growth to Rs 2,482.7 crore, but a drop of nearly 2 per cent on a sequential basis.

In the year-ago quarter, the company had posted a 37 per cent YoY increase in net profit to Rs 2,042 crore. Its revenue had risen 24 per cent on a yearly basis to Rs 35,709 crore, while its other income had stood at Rs 606 crore during the period. It had bagged orders worth Rs 42,233 crore at the group level during the quarter.

Centrum Broking expects L&T’s revenue growth to be 11.2 per cent YoY, led by hydrocarbons (where revenue could grow 19.5 per cent YoY, led by a strong order backlog) and IT segments (where revenue growth could be 59.1 per cent YoY, largely due to the incremental contribution from Mindtree).

"We expect infra segment revenues to grow 7 per cent YoY to Rs 19,700 crore, led by domestic orders. Growth in the power segment will continue to remain weak, while revenue from real estate and others segment is likely to fall sharply,” the brokerage firm said in an earnings preview note.

Management commentary on the FY20 revenue growth and order inflow growth guidance will be key things to watch in the result announcement on Wednesday.



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