NEW DELHI/MUMBAI: Larsen and Toubro Ltd , India’s largest engineering and construction group, will look overseas to offset a weak economy and project bottlenecks at home that led to a bigger-than-expected profit drop.
Shares in L&T closed down nearly six percent after the Mumbai-based company’s profit fell 6.9 percent for the fiscal fourth-quarter ending March, as its margins narrowed and existing infrastructure projects struggled to get off the ground.
The share drop was L&T’s biggest since January 2010, underscoring worries about the state of India’s economy, for which L&T is seen as a bellwether.
India’s economy slowed to 4.5 percent in the December quarter, far off the near double-digit growth the leaders of the emerging Asian giant would like, as bureaucracy and a lack of financially viable projects have hit infrastructure building.
However, L&T, whose interests span shipbuilding to railways, forecast net sales for the current fiscal year would rise by as much as 17 percent and new orders would swell by about a fifth, thanks to expansion in the Middle East and Africa.
“I would be very cautious about India growth,” A M Naik, executive chairman, told a news conference in Mumbai. “I wouldn’t want to give a very optimistic view,” he said.
The Indian government, which has struggled to implement a slew of policy reforms to help revive growth, faces a general election within a year, which could see it ramp up social spending, especially on higher food subsidies.
“Until the new government is installed, there will be social spending and development will take second priority,” said Naik.
But L&T has put a “tremendous amount” of effort into diversifying and not being an “only-India organisation”, he added.
“Since L&T has a wide range portfolio and since we have overseas presence, whatever shortfall we have in India we’ll make up for it outside India.”
L&T’s net profit fell to Rs17.88bn in the March quarter, from Rs19.2bn reported a year earlier. Analysts had expected the company to report a net profit of Rs18.56bn, according to Thomson Reuters I/B/E/S.
Reuters
