Larsen & Toubro reports stellar performance in Q2FY22 despite COVID challenges

L&T's 2QFY22 operational results were better than estimated, and the margins reported in both the segments were exceptional.  Core business performance was affected by COVID challenges and uncertainties, however, margins fared better and were unhindered. Despite COVID challenges, in 2HFY22, the company believes that the long term business prospects remain promising and expects traction towards the core business and GATI Shakti remains a key pivotal theme to revive and put the Indian Economy on a growth trajectory.

Operational performance reported better than estimated margins in both segments. Sales stood at 12% YoY (Rs. 348bn), core segment revenue stood at Rs. 228bn, up 12% YoY and segment revenue stood at Rs.  120bn (13%) YoY basis, EBITDA stood at Rs. 40bn, service margins stood at 18.2% (+80bps) YoY while core business margins stood at 8% (+56bps) YoY and Adjusted PAT was reported at Rs. 17.2bn, up by 56%, YoY basis.

Core business (ex-services) sales registered strong growth of 12% YoY while margins positively improved to 8% (+60bps) YoY basis as L&T adopted a calibrated approach in executing projects supported by cashflow availability and improvement in infrastructure segment. Domestic E&C segment grew by 27% YoY in 2QFY21 whereas Overseas E&C revenue declined by 22% YoY. The Infrastructure sector margins improved to 8.3% by 190bps YoY whereas margins in the Heavy engineering & defence, hydrocarbon and power sector remained under pressure and declined 140, 20, and 40bps YoY respectively, partially due to offsetting the margin improvement of the infrastructure segment. 

Execution has resumed at all sites, with sites operating with labour availability at pre-COVID levels. Execution can witness sharp pick up going ahead as productivity related challenges are broadly addressed, order backlog remains healthy 
and company has not seen any cancellations of awarded orders. 
During 2QFY22, delays in deliveries due to COVID heavily impacted the order inflow which stood at Rs. 421bn (up by +50% YoY), and working capital cycle for 2QFY22 stood at 22% vs 26.7% in 1HFY21, L&T extremely healthy ordering pipeline at Rs.6.8t which includes domestic orders worth Rs. 4.7t and international orders worth Rs. 2.1t. The backlog in orders stands at INR3.3t (+11% YoY) which provides strong revenue visibility and comfort on Core E&C revenue.