The announcement of Larsen & Toubro Ltd (L&T) September quarter results was eagerly awaited, as the company had said it will also announce a special dividend at the same time. In fact, in anticipation, L&T shares had risen more than 5%, as some analysts estimated that the dividend payment was around Rs 36 per share.
It turns out that L&T announced a dividend of ₹18 per share, which is on the lower end of Street’s expectations. Also note that this represents only about 20% of the net proceeds from the sale of your recently concluded deal with Schneider Electric. Investors will clearly be disappointed, although the company has said the rest of the proceeds will be used to deleverage the balance sheet and also to refinance and restructure the Hyderabad metro project. The company said at a press conference that it is also looking to use some of the funds for inorganic growth in its services segment, especially the financial services arm; while some will also be implemented in the main engineering business.
The side of investing in side businesses is a bit of a concern as investors expected a reduction in side business exposure.
“The company is taking steps to reduce its focus on nonessential businesses to allay investor concerns, but these concerns will take longer to fully subside,” said an analyst at a multinational brokerage firm who requested anonymity.
Meanwhile, the company’s September quarter results were impressive at a significant pace compared to analyst estimates. The Ebitda of ₹Rs 3,340 crore was 10% ahead of Yes Securities analyst estimates. Margins were supported by benefits from operating leverage and cost rationalization measures.
“The order intake stood at ₹28,040 crore, (compared to our estimates of ₹25,000 crore). International orders amounted to Rs 8.9 billion (36% of the total order flow), analysts at the brokerage said in a note to clients.
The company’s management said the orders came largely from government spending in the infrastructure segment. Despite concerns about government capex, orders came from the power transmission and metro segments, among others. However, there was not much momentum in order entry in L & T’s hydrocarbons and energy divisions.
Execution at the company’s project sites has improved due to increased labor availability. The company said that manpower availability is now at pre-covid levels. However, the decline in its core engineering and construction revenues also continued in the second quarter, dropping 18% year-on-year.
L & T’s consolidated debt was reduced to ₹146 billion rupees at the end of the September quarter; the plan is to reduce debt using operating cash flows. L&T had set a debt reduction target of ₹30,000 crore for fiscal year 21 through the sale of assets such as the Nabha Power project.
While the results were decent, the fact that the stock has risen in recent trading sessions may create some downward pressure when trading resumes on Thursday, an analyst at a multinational brokerage said, requesting anonymity.
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