Larsen and Toubro Ltd, India’s largest engineering and construction group, will look overseas to offset a weak economy and project bottlenecks at home that led to a bigger-than-expected profit drop.
Shares in L&T closed down nearly 6 per cent after the Mumbai-based company’s profit fell 6.9 per cent for the fiscal fourth-quarter ending March, as its margins narrowed and existing infrastructure projects struggled to get off the ground.
The share drop was L&T’s biggest since January 2010, underscoring worries about the state of India’s economy, for which L&T is seen as a bellwether.
India’s economy slowed to 4.5 per cent in the December quarter, far off the near double-digit growth the leaders of the emerging Asian giant would like, as bureaucracy and a lack of financially viable projects have hit infrastructure building.
However, L&T, whose interests span shipbuilding to railways, forecast net sales for the current fiscal year would rise by as much as 17 per cent and new orders would swell by about a fifth, thanks to expansion in the Middle East and Africa.
“I would be very cautious about India growth,” A.M. Naik, executive chairman, told a news conference in Mumbai. “I wouldn’t want to give a very optimistic view,” he said.
The Indian government, which has struggled to implement a slew of policy reforms to help revive growth, faces a general election within a year, which could see it ramp up social spending, especially on higher food subsidies.
“Until the new government is installed, there will be social spending and development will take second priority,” said Naik.
But L&T has put a “tremendous amount” of effort into diversifying and not being an “only-India organisation”, he added.
“Since L&T has a wide range portfolio and since we have overseas presence, whatever shortfall we have in India we’ll make up for it outside India.”
L&T’s net profit fell to 17.88 billion rupees in the March quarter, from 19.2 billion rupees reported a year earlier. Analysts had expected the company to report a net profit of 18.56 billion rupees, according to Thomson Reuters I/B/E/S.
Overseas orders for the current fiscal year would exceed 250 billion rupees, Naik said, up from nearly 150 billion in the last fiscal year, which ended in March.
L&T has in recent months won construction work at an Abu Dhabi airport and a contract for a gas processing plant for state-run Saudi Aramco, according to media reports, although it has declined to comment.
The company, valued at about $18 billion, wrote off about 170 billion rupees of orders in the past fiscal year in sectors including power and steel as projects failed to get off the ground, Naik said.
He added that another 50-60 billion rupees worth of “slow-moving” orders were expected to revive, however.