L&T FY22 guidance on order inflows aggressive: Analysts

Motilal Oswal has raised concerns that order inflows can be bulky and there may be deferment of orders in FY22.

Larsen and Toubro’s (L&T’s) guidance on order inflows for the financial year 2021-2022 looks aggressive to analysts tracking the company, while that on revenue and margins looks achievable. The company on Friday said it expected to exit FY22 with a growth rate that could range anywhere up to low- to mid-teens in terms of order inflows and revenues. It has estimated that its margins would remain stable, and in line with FY21.

“Order inflow guidance at low- to mid-teens appears ambitious as FY21 had lumpy order wins—high speed rail contracts,” analysts at Nomura observed. The foreign brokerage estimated growth at 9% to Rs 1.9 lakh crore in FY22 for order inflows, in-line with about 9% growth in prospect pipeline to `9.6 lakh crore for the current financial year.

“The guidance of mid-teens growth for orders and revenues may appear aggressive especially as we head into a quarter with significant weakness owing to execution challenges around Covid,” wrote analysts at Bernstein. Motilal Oswal has raised concerns that order inflows can be bulky and there may be deferment of orders in FY22.

On Friday, the heavy engineering to infrastructure major beat analyst estimates to report a year-on-year increase of 3% in net profit to `3,293 crore during the January-March quarter, even as fresh orders remained under pressure. Bloomberg consensus estimates were at nearly Rs 3,043 crore.

The company’s consolidated revenue during the period was up 9% YoY to Rs 48,088 crore, which was in line with the estimates, while the ebitda (earnings before interest, tax, depreciation and amortisation) surged a good 25% YoY to Rs 6,390 crore, much ahead of analyst expectations of Rs 5,516 crore. Consequently, operating margins were up 170 basis points YoY to 13.3% during the fourth quarter.

L&T reported strong margins during the quarter despite sharp increase in commodity prices. The management has said commodity price inflation will have to be watched out for during the current financial year. However, analysts said L&T had sufficient levers to manage margins and there was low risk on that front.

According to Nomura, based on a sharp rise in rebar prices into first quarter of 2021-2022 and L&T steel consumption of 3.2 million tonne in FY20, it estimate about 210 basis points impact on core ebitda margins. “This is offset to the extent of 120 bps by higher execution levels leading to lower under-recovery of overheads and completion of legacy transport infra projects,” analysts said.

“L&T has rightly prioritised its balance sheet strength over growth during the second COVID wave. While COVID 2.0 has brought on similar challenges as last year, construction activity has been ongoing unlike last year and hence, the impact should be lower than last time,” analysts at Motilal Oswal observed.

The domestic brokerage has maintained its consolidated earnings estimate for the company in 2021-2022. “Our estimates largely account for commodity price inflation risk. Our consolidated revenue/EBITDA/adjusted PAT CAGR estimate stands at 14%/17%/28% over FY21-23E, helped by lower losses in the Hyderabad Metro,” analysts said.

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