Larsen Surges Most in Six Months on Revenue Outlook, Job Cuts

  • Investment momentum seen helping order flows, CFO Raman says
  • IDBI Capital upgrades stock to accumulate on growth outlook

Larsen & Toubro Ltd. jumped the most in six months as India’s biggest engineering company maintained it’s growth forecast even after eliminating a tenth of its workforce.

Shares of Larsen rose as much as 4.2 percent in Mumbai -- the highest since May 26 and the biggest gainer Wednesday on the benchmark S&P BSE Sensex -- and was trading 3.3 percent up at 1,374.00 rupees as of 11:02 a.m.

“First, projects are moving faster than expected. Second, completed projects have doubled over the base year. Third, abandoned projects dropped by three-fifths,” IDBI Capital said in a research note as it upgraded the stock to accumulate from hold.  "L&T is a key beneficiary of roads, power transmission, water, affordable housing and the infrastructure-led orders."

Prime Minister Narendra Modi’s administration, which faces crucial elections across several states next year, aims to spend as much as $14.5 billion in the year to March on expanding India’s network of roads and ports, amid slowing private investment. The move will benefit Larsen as it is India’s biggest builder of roads and power plants.

Larsen cut about 14,000 jobs over the past six months, or about 11 percent of the group’s total workforce that spans businesses from information technology to financial services, Chief Financial Officer R. Shankar Raman said in a press conference in Mumbai on Tuesday. The company also said it sees revenues rising 12 percent to 15 percent for the year ending in March 31, with order inflows rising 15 percent.

However, India’s surprise move to ban high-denominated bills could affect the company’s execution of civil and real estate projects in the near term, brokerage Sharekhan Ltd. said in a research note. On Tuesday, Larsen said net profit rose 84 percent to 14.3 billion rupees ($209 million) for the three months ended in September.

"The investment momentum has returned," Raman said, "Ordering and decision on awards are beginning to kick in the domestic market and we hope it would be sustained in remaining quarters of the year."