January 17, 2017

Analysis:Will Oct-Dec announced order wins lead L&T to meet guidance?

By Rajesh Gajra

Larsen & Toubro Ltd's announced order wins of 148 bln rupees may not prove to be much of a hindrance in the company's progress path towards meeting its 2016-17 guidance of 15% on-year growth in consolidated order inflow.

he largest engineering and infrastructure company in the country with a long history of executing domestic and international projects announces key order wins during a quarter but the final order inflow is disclosed after the quarter ends and along with the quarterly results.
The last four reported quarters till Jul-Sep has seen the ratio of L&T's announced key order wins to eventual order inflow figures range between 35% and 70% (see table), an analysis of data from Cogencis Corporate Fundamental Database showed.

L&T announced order wins and final order inflow

​    ​
                     Order wins         Reported order inflow
​   ​
                  during quarter     in quarterly results
                         -------------              ---------------------
                            Bln rupees         Bln rupees
                               ----------         ----------
Jul-Sep 2016-17          217              311
Apr-Jun 2016-17          145              297
Jan-Mar 2015-16          223              433

Sep-Dec 2015-16           73              385
Figures pertain to consolidated financials

In Oct-Dec the order wins announced during the quarter added up to 148 bln rupees. If the actual order inflow figure, which will be disclosed when L&T reports the earnings for the quarter in January or February, fall under the 35-70% range, the Oct-Dec order inflow could come in between 210 bln rupees and 420 bln rupees.
This would result in the Apr-Dec order inflow coming in at between 820 bln rupees and 1350 bln rupees, as against 927 bln rupees reported in the Apr-Dec period of 2015-16. The on-year change in order inflow during Apr-Dec would range between an increase of 45% and a decline of 12%.
Historically, L&T's announced order wins to reported order inflow ratio in any quarter has tended to be volatile and it is hard to predict how much it will be for the Oct-Dec quarter, said an analyst from Motilal Oswal Securities.
Other analysts said the demonitisation effect will not hit L&T's revenues from the execution of existing projects but there could be some adverse effect on new orders on account of some delay in start of new projects.
Order inflow growth in Oct-Dec would therefore is seen by analysts as a critical indicator of progress made by L&T to attain its 2016-17 guidance of 15% growth rate in order inflow.

L&T's management guided that incremental order inflow growth would be supported by pick up in ordering activity in the power, railways, hydrocarbon and defense segments, according to a recent research update on L&T by Motilal Oswal Securities.
In Apr-Sep, order inflows at L&T grew 12% on year to 608 bln rupees.Will the Oct-Dec order inflow figure help make the Apr-Dec on-year growth materialize at the top end or the bottom end of the -12% to 45% range?
L&T's reliance on domestic projects has stayed intact in 2016-17. Domestic projects made up for 66% of the order inflow in Apr-Sep while 34%
​ ​
came from international projects. In Apr-Sep 2015-16 too, the order inflow
​ ​
break-up was 66% domestic and 34% international.
In an investor presentation in November, L&T said its order inflow growth
​ ​
in Apr-Sep was mainly from domestic infrastructure and international hydrocarbon verticals. The company said its domestic capital expenditure was picking up in selective areas.
The outstanding order book of L&T on Sep 30 was placed at 2518 bln rupees, as against 2500 bln rupees as of Mar 31 and 2426 bln rupees a year ago.

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