L&T Shares Fall on Q2 Margin Dip, Guidance Cut

Larsen & Toubro shares fell over 3 per cent on Monday as the engineering and construction major's quarterly margin failed to impress the Street. L&T's Q2 ebitda margin grew at 11 per cent in the September quarter as compared to 13 per cent in the corresponding quarter last year. Q2 results were announced post market hours on Friday.

A Maybank analyst said the fall in margins was on account of "execution of low margin work". L&T has an order backlog of Rs 2.1 trillion, the brokerage added.

A cut in 2014-15 revenue guidance also weighed on shares. L&T said its revenues are likely to grow between 10-15 per cent this fiscal as compared to earlier stated guidance of 15 per cent.

"The company is facing execution challenges in three sectors - power, metals, and hydrocarbon. To factor this, we marginally cut our FY15 revenue forecast growth to 12 per cent from 15 per cent earlier," Maybank said.

The stock, however, traded off the day's low as L&T ticked most of other key boxes in its Q2. Net profit rose 6.5 per cent rise in Q2, beating analyst forecasts on the back of new order wins in its infrastructure, power and hydrocarbons businesses.

The company said in a statement that net profit came in at Rs 1,042 crore for the three months to September 30. The average estimate of eleven analysts polled by Thomson Reuters was for L&T to make Rs 952 crore.

Last year L&T, which lays roads, constructs ships, makes power plant equipment and develops real estate, reported net profit of Rs 978 crore.

Market analyst TS Harihar said the disappointment in Q2 has been on account of front-ending of expectations from L&T. Q2 numbers are a short-term negative for the stock, he added.

L&T shares ended 2.1 per cent lower at Rs 1,619 apiece, underperforming the Nifty which closed 0.1 per cent higher on Monday.

Brokerages on L&T Q2:

Maybank cut its target price to Rs 1,967 from Rs 2,000. It also cut its profit growth forecast for FY15 to 9 per cent from 12 per cent earlier. FY16/17 profit will rise to 18 per cent as the current backlog of Rs 2.1 trillion (2.3 times revenue) provides strong revenue visibility, it added.

Retaining its buy rating, CLSA said the key positive was 83 per cent of orders booked in domestic market. L&T will take advantage of revival in infra investments, it added.

Citi continues to be neutral on L&T and advised investors to switch to Voltas, Havells and Cummins. However, it added that L&T will benefit immensely from domestic economy recovery.

Macquarie said L&T will see sharp earnings acceleration beginning FY16 and is the best way to play a turnaround in India.

(With inputs from Reuters)