Larsen Sales Growth to Accelerate on Energy Market Projects

Larsen & Toubro Ltd., India’s biggest engineering company, said its sales growth will accelerate in the second half as demand for energy exploration and construction projects recovers.

That will help Larsen achieve its revenue and order growth forecast of 15 percent to 20 percent for the year ending March, Chief Financial Officer R. Shankar Raman said yesterday after the company posted a second straight drop in quarterly profit. Orders booked in the quarter ended June 30 rose 28 percent to 252 billion rupees ($4.2 billion), Larsen said in a statement.

“All of us across the industry are positioned to do much larger volumes than what we’re currently doing,” Raman said in Mumbai, where Larsen is based. The area of “hydrocarbon is just getting busy,” he said.

Larsen shares rose for the first time in three days in Mumbai trading today. The stock fell the most in more than four years yesterday after first-quarter profit missed analyst estimates. India’s slower pace of economic expansion, widening fiscal deficit and high current account deficit had resulted in “lackluster” investment in infrastructure such as power plants and highways, according to Chairman A.M. Naik.

Net income in the first quarter declined 13 percent to 7.56 billion rupees, the biggest drop in three years. That lagged behind the 9.06 billion-rupee median of 38 analyst estimates compiled by Bloomberg. Sales rose 5 percent, the slowest pace in at least three years, to 125.6 billion rupees.

Overseas Contracts

Revenue from hydrocarbon projects rose 24 percent in the quarter from a year earlier to 27.8 billion rupees, Larsen said in the statement. The segment secured fresh orders of 28 billion rupees during the period, with contracts from overseas accounting for almost of half of it, the company said.

New contracts from infrastructure projects rose 14 percent to 175.8 billion rupees in the three months. The company’s order book stood at 1.65 trillion rupees as of June 30, rising 8 percent from a year earlier, according to the statement.

“Order inflow and revenue targets are achievable. The challenge is how are they going to protect margins,” said Jinal Joshi, a Mumbai-based analyst at BOB Capital Markets Ltd., who has a buy rating on the stock. “They can boost orders easily by going abroad.”

Larsen rose 1.6 percent to 916 rupees as of 10:10 a.m. in Mumbai trading. The S&P BSE Sensex Index gained 0.8 percent.

Power, Oil

The company reported a net income margin of 6.02 percent in the three months ended June, the smallest in 19 quarters, data compiled by Bloomberg show. Larsen will continue to benefit from a drop in commodity prices, Raman said. Margins will also improve from an increase in local orders for power and oil sector projects, he said.

Volatility in the Indian rupee, which declined 8.6 percent against the dollar last quarter, and uncertainty in financial markets affected “investment sentiment,” Larsen said in the statement. India’s economy expanded 5 percent in the year ended March, the weakest pace in a decade.

“We are an under-serviced and under-invested economy and therefore there are going to be opportunities,” Raman said. “We will continue to look forward for orders rather than worry about things that are certainly beyond our control.”

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