What is your initial reading of the L&T result? How does this compare to what you were looking for?
The numbers have been better than what the parameters were, especially the EBITDA margins and the EBITDA number, profitability has also come in at a higher level than what the estimates were. Order book is quite strong, consolidated PAT at about Rs 1820 crore is above our estimates of Rs 1,750 crore. My sense is that if we can get the breakup business wise, that will help because I would be particularly interested in understanding how the turnkey business has done and more importantly how the hydrocarbon business has contributed.
Overseas orders have been coming in thick and thin and execution is something that L&T is known for. Looking at these numbers, my personal feeling is that if the capex has to kick off, then the order book will also increase and so will the earnings visibility. One thing is if you look at the capital goods engineering space, for a company like L&T, which has diversified businesses, one needs to look at a longish time horizon.
The commentary that is coming in says that they have a positive outlook on the business environment with overall economic activity progressing to pre Covid levels. Do you anticipate that things will get even better? But there is a miss on the revenue front. Is that something that you have noticed as well?
It is in line with what we had pencilled down and it is good to see things coming back to pre Covid levels and more importantly, the government is also going to spend big amounts as far as infrastructure is concerned. Given the largest player L&T should possibly be benefitting over a period of time. Like I was mentioning, if the private capex also has to kick off, then that will only add to the earning visibility of a company like L&T. Further commentary from the business in terms of the order execution run rate would also help but I would be more keen on looking at business wise breakup.
Speaking about the hydrocarbon segment, the segment orders for the quarter stood at Rs 14,503 crore and the company is saying that that is a significant growth over the corresponding quarter a year ago. That is certainly the result of the low base on account of Covid but the customer revenues during the quarter from this segment is Rs 4,867 crore and that is a year-on-year growth of as much as 20%. What would you say with regard to that?
The hydrocarbon business is really impressive. Remember, we are just coming out of the lockdown to unlock and the new normal is setting in. My guess is that if the third wave does not play a spoilsport and if the spending from the government and from the private sector starts contributing, then that should look even stronger.
According to the government, the NELP policy — which is the exploration policy of natural resources as far as crude oil and natural gas is concerned — has to ensure that India brings down the dependency on imports of crude oil and natural gas. That means the government should encourage both PSUs as well as private companies to explore the unexplored horizons in terms of natural resources in our country. That is where the expertise of companies like L&T will come into play.
The EBITDA margin in hydrocarbon has come in at 8.3% compared to 8.5% in the same quarter a year ago. We have seen a substantial drop in the EBITDA margins for the defence segment which has come in at 13.7% compared with 24.4% in the previous year. There is a substantial increase in the EBITDA margin for the heavy engineering space which is 15.7% compared with 5.1%. Overall, what are your impressions about the EBTIDA margins?
I would give it one off for hydrocarbon and defence business given the situation that we all were living in. Remember one thing, hydrocarbon and defence businesses are very complex businesses and they require longish gestation periods with the kind of execution run rate that you can deliver. Having said that, management commentary in terms of the outlook of business both in terms of defence and hydrocarbon are likely to come through or from the private side and more importantly on the infrastructure side, given the push that the government is giving to increase the existing infrastructure to modernise it.
I would be keen on hearing the segment wise commentary and defence and hydrocarbons are going to play a game changer if things have to change for better.
