L&T Targets Additional Orders Worth Rs 2 Lakh Crore In FY24, But There's A Challenge

Larsen & Toubro Ltd. is targeting additional orders worth Rs 2 lakh crore after the first-quarter surge as India's largest construction and infrastructure company reaps gains from the government's spending on rail and roads to irrigation projects.

First-quarter order inflows jumped 57% to Rs 65,000 crore, Chief Financial Officer R Shankar Raman told BQ Prime's Sajeet Manghat in an interview.

The construction giant reported fresh orders worth Rs 2.3-lakh crore in FY23 and guided for a growth of 10–12% for FY24. This projection could potentially take this fiscal's order inflow to Rs 2.5-2.6-lakh crore.

"Mathematically, instead of working on percentages and possibly feeling complacent," Raman said, "what the company is focusing on, 'where is my next (Rs) 2-lakh crore of incremental orders going to come from?'"

L&T would require three more successful quarters, including the current one, to gain confidence in achieving their guidance. This means a consistent performance in the upcoming quarters is essential for it stay on track to meet its targets.

L&T's optimism stems from India's unwavering focus on infrastructure spending even as private investments are yet to gather momentum. For FY24, Prime Minister Narendra Modi's government raised the budget for capital expenditure by 33% to Rs 10 lakh crore, the highest ever. The focus on capex reflected in L&T's first quarter earnings.

• Net profit rose 46.5% to Rs 2,493 crore in the April–June quarter as against a Bloomberg estimate of Rs 2,128 crore.

• Revenue from operations rose 33.5% to Rs 47,882.4 crore, as against a Bloomberg estimate of Rs 41,056.8 crore.

• Operating profit, or Ebitda, rose 23% to Rs 4,868.6 crore, as compared with a Bloomberg estimate of Rs 4,490.5 crore.

• Operating margin stood at 10.1% versus 11.03% a year ago.

Order inflows at the group level rose 57% year-on-year to Rs 65,520 crore in the April–June quarter. The orders were registered across rail, renewables, rural water supply, transmission and distribution, IT and office space, and the onshore and offshore verticals of the hydrocarbon business, according to the company.

Two sectors stood out, according to Raman: About Rs 40,000 crore of the orders came from infrastructure and Rs 7,000 crore from the hydrocarbon sector.

L&T's growing order book, which is already at record levels, throws up the challenge of execution. "We can have the best of plans but we need people to execute. Skill shortage is becoming a concern as our order book grows," Raman said.

The company had enough workmen to feel comfortable when the order book was Rs 2 lakh crore, he said. But it's a different proposition when that growth to Rs 4 lakh crore and Rs 6 lakh crore, he said.

"As the scale of the operations increases, the skill pool has to increase. Today, one of the concerns is how do you expand on the skill pool," he said.

But skills can't be developed overnight and will take time, he said. "You have to work with this pool of people to convert them from semi-skilled to skilled, and unskilled to semi-skilled."

The board of directors has approved a share-buyback proposal of Rs 10,000 crore.

Raman explained that the buyback represented the accumulation of cash flow from the past few years, which the company was utilising. "The purpose behind the buyback is to distribute to the shareholders the profits we have made with the money they have invested with us."

"Once in a while when you have accumulated surplus then what you need for your growth, instead of safekeeping it and acting like a bank, we might give it to the shareholders and make them feel wealthy," he said.

Shares of Larsen & Toubro were trading 0.59% higher at Rs 2,661.75 as of 1.04 pm, as compared to a 0.34% decline in the benchmark NSE Nifty 50.