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Record high order book is one of the many positives of L&T’s Q3 earnings – Mint

Engineering major Larsen & Toubro reported decent earnings in the December quarter with a strong operating performance. Earnings before interest, tax, depreciation and amortization (Ebitda) stood at 42,800, up 4% year-on-year (y-o-y) basis. Ebitda margins came in at 12%.

“3QFY21 EBITDA was 18% ahead of expectations and PAT rose 3% YoY, as margins surprised by 200 basis points at 12%,” analysts at Jefferies India Pvt. Ltd said in a report on 25 January. One basis point is one hundredth of a percentage point. Even though most key earnings parameters have shown improvement, L&T’s revenues fell 1.8% y-o-y in the December quarter and are yet to recover to pre-pandemic levels.

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Nonetheless, its order book remains strong. In fact at the end of the December quarter, its order book stood at record high of 3.31 trillion, which is its highest-ever orders booked in a quarter. Its management said that this was aided by many large contracts including the biggest EPC contract in the country ever – the High Speed Rail order. With labour availability almost back to normal, execution has improved. On the flipside, international order inflows remained subdued so far in this fiscal year. But the company has bid for several renewable solar energy projects in Saudi Arabia and United Arab Emirates. In the December quarter, domestic order flow rose 157% y-o-y, but international orders were down 31% y-o-y.

Apart from shortage of labour, stretched working capital needs was another key issue facing many capital goods companies. The management said, it met it’s nine-month liquidity needs fully out of its customer collections. L&T collected around 32,000 crore from customers, mainly government and public sector. Analysts say, the working capital concern is fast easing for L&T.

Although the company’s management has positive outlook, it refrained from giving any guidance for fiscal year 2021. That said, investors should note that L&T’s 5-year strategic plan Lakshya ends in FY21. So, any development related to future capital allocation should be watched out for.

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