Short Takes - L&T maintains order flow momentum

The solid 30 per cent growth in its order book in the September quarter after the 21 per cent rise in the June quarter affirms that engineering major Larsen and Toubro is treading a path different from what it did last fiscal. Aided by strong execution, the company also grew its September quarter sales and adjusted net profits by a healthy 17 per cent and 15 per cent over the same period last year.

The major order growth driver for the company was the infrastructure segment.

This business accounted for half the new orders, higher than last year while power equipment and export orders weakened.

L&T’s urban infrastructure and water segments picked pace during the quarter. These businesses could contribute more in the future, given that the company is going slow in bidding for road development projects. That said, the company is still taking up pure road construction contracts.

Meanwhile, the company’s capital goods business is under pressure due to weak industrial demand.

L&T’s financial performance benefited from better inventory control. This reduced input cost as a proportion of sales by 3 percentage points to 43 per cent in the September quarter over the same period last year.

But this was offset by a sharp rise in sub-contracting cost which increased from 16 per cent of sales a year ago to 22 per cent. Operating margin remained the same as last year at 10.4 per cent — an improvement over the June quarter when higher costs reduced margins by 3 percentage points.

M&M zips ahead on utility vehicle sales

The slowdown in the auto sector did not affect Mahindra and Mahindra in the September quarter. Buoyed by a strong 32 volume growth in utility vehicle sales, the auto segment which contributes nearly three-fourth of the company’s revenues reported sales growth of 58 per cent.

This helped the company grow its September quarter sales and profits by 33 per cent and 22 per cent respectively. The company’s operating profit grew by around 25 per cent.

Margins though declined from 12 per cent in the September 2011 quarter to 11.4 per cent.

This was mainly due to the weak demand for tractors, whose volumes dipped 12 per cent year-on-year due to base effect and weak monsoons. It did not help that the 40 HP segment tractors, in which M&M has a high market share, saw the largest fall.

While the auto division is expected to continue on its strong growth path, there may be a pick-up in tractor sales too. The monsoon pick-up towards the end of the season and better price outlook for kharif crops could drive up demand.

Lanco Infra downgraded to 'default'

The stock of Lanco Infratech lost 14.3 per cent in the last two trading sessions of the week following the company's rating downgrade to ‘default’ by CRISIL. The company’s rating has been downgraded four times over the past 15 months from investment grade rating of A- in August 2011.

The default rating, according to the credit rating agency, is due to delay in debt repayment by Lanco. Lanco Infratech had consolidated debt of Rs 28,000 crore as of March 2012. Of this, around Rs 8,784 crore was either short-term debt or had residual maturity of less than one year.

According to Lanco’s quarterly release, the total debt as of June 2012 was Rs 33,000 crore. The default rating severely impairs the company’s ability to raise or refinance fresh debt.

With large debt obligations expected to come up for maturity in the next few months, the company has to get huge cash inflow from equity raising, operating cashflows and also from working capital.

The trade receivable at the consolidated level was Rs 3,764 crore as of March 2012.

The delay in implementation of its power projects, subdued merchant tariffs and the underperformance of Griffin coal assets continue to exert pressure on the company’s cash flow generation.

COMMENT NOW