Wednesday, 22 July 2020

Noteworthy performance in an

Noteworthy performance in an unprecedented quarter



For most of the quarter, the Company focused on safety of its workforce, transition to productive remote working, staying engaged with all its stakeholders, conserving resources and resuming business in a carefully calibrated manner in an economic environment debilitated by the Coronavirus black swan event. While most businesses were significantly impacted by the pandemic, the Company ensured that interests of all concerned including customers, employees, sub-contracted labour force, partners, associates and vendors were taken care of in a befitting manner. It is
during these difficult times that the Company’s committed employees, diversified business portfolio, geographical mix of business, robust Balance Sheet, strong Order Book position and execution strengths enabled it to ride out the unprecedented crisis that the world at large is grappling with.

Larsen & Toubro recorded Consolidated Gross Revenue of ₹ 21,260 crore for the quarter ended June 30, 2020, registering y-o-y decline of 28%. Revenue was impacted by nation-wide lockdown, resulting in halting of manufacturing and construction activities, non-availability of labour and disruptions to the supply chain ecosystem. International revenues during the quarter at ₹ 9,497 crore constituted 45% of the total revenue, with increased composition of the non-cyclical
IT&TS segment.

The Company earned a total Profit After Tax of ₹ 544 crore of which allocation to Non-controlling interest is ₹ 241 crore. The consolidated PAT attributable to shareholders of the Company, including profits from discontinued business, is ₹ 303 crore reflecting a decline of 79% vis-à-vis PAT of ₹ 1,473 crore for the corresponding quarter of the previous year. The PAT was impacted mainly due to
lower revenue, credit provisions in Financial Services business and under recovery of overheads.

The Company bagged orders worth ₹ 23,574 crore at the Group level during the quarter ended June 30, 2020 registering decline of 39%, in a quarter characterized by low interest towards fresh investment and deferment of award decisions.
International orders during the quarter at ₹ 8,872 crore constituted 38% of the total
order inflow.
The Consolidated Order Book of the Group stood at ₹ 305,083 crore as at June 30, 2020, with international Order Book constituting 24% of the total Order Book.

Infrastructure Segment
Effective from April 1, 2020, Smart World and Communication business, which was hitherto reported under Infrastructure segment, has been reclassified to “Others Segment” to reflect the revised organisation structure, performance evaluation parameters and management of financial performance. Accordingly, previous year figures have been regrouped wherever necessary.
Infrastructure segment secured orders of ₹ 11,349 crore, during the quarter ended June 30, 2020, lower by 32% compared to the corresponding quarter of the previous year. Major orders received included a large barrage project, rural water supply schemes, an expressway project and some international orders in Power Transmission and Distribution. International orders at ₹ 1,653 crore constituted 15% of the total order inflow of the segment during the quarter, mainly from Middle East region.
The Order Book of the segment stood at ₹ 221,115 crore as at June 30, 2020, with the international order book constituting 22% of the total Order Book.
Infrastructure segment recorded Customer Revenue of ₹ 6,393 crore for the quarter ended June 30, 2020, registering a y-o-y decline of 53%, with stoppage in project execution on account of nation-wide lockdown, restricted availability of labour and disruptions to the supply chain ecosystem. International revenue constituted 29% of the total customer revenue of the segment during the quarter.
The EBITDA margin of the segment during the quarter ended June 30, 2020 was stable at 6.3% vis-à-vis 6.4% recorded in corresponding quarter of the previous year, due to favourable input costs and expense control measures.
Power Segment
Power segment did not receive any major order for the quarter ended June 30, 2020, given the significant slowdown in the sector consequent to the recessionary economic conditions. Order inflow during the corresponding quarter of the previous

year, included a large value order for a 2x660 MW ultra- supercritical thermal power
plant in Buxar, Bihar.
The Order Book of the segment stood at ₹ 15,443 crore as at June 30, 2020, with the
international order book constituting 7% of the total Order Book.
Power segment recorded customer revenue of ₹ 374 crore during the quarter ended
June 30, 2020, registering a y-o-y decrease of 33% as all sites were operating at suboptimal
levels for major part of the quarter under review. International revenue constituted 8% of the total customer revenue of the segment during the quarter.
The segment EBITDA margin for the quarter ended June 30, 2020 was at 1.0%, lower
compared to 3.3% recorded in corresponding quarter of the previous year mainly due
to early stage of execution of orders won in the previous year.
Heavy Engineering Segment
Heavy Engineering segment secured orders at ₹ 476 crore during the quarter ended June 30, 2020, recording a significant y-o-y increase over a low base. International orders constituted 70% of the total order inflow of the segment during the quarter.  The Order Book of the segment stood at ₹ 4,118 crore as at June 30, 2020, with 52% being international.
The segment recorded Customer Revenue of ₹ 378 crore registering a y-o-y decline of 57% over the corresponding quarter of the previous year. The decline was mainly in the refinery business, which in the previous year included simultaneous execution of multiple high value heavy reactor orders, as well as due to lower manufacturing activity during the lockdown period. International sales constituted 66% of the total customer revenue of the segment.
The EBITDA margin of the segment at 17.5% for the quarter ended June 30, 2020 registered decline over the corresponding quarter of the previous year at 19.5%, on account of under-recovery of overheads amidst low capacity utilisation. 

Defence Engineering Segment
Military communication business, which was reported under Defence Engineering segment till last year, has been made part of the Smart World and Communication  business which is now reclassified to “Others Segment”. Accordingly, previous year figures are regrouped wherever necessary.
Defence Engineering segment received orders of ₹ 140 crore during the quarter ended June 30, 2020, lower by 47% over the corresponding quarter of the previous year with deferment of awards from Ministry of Defence. International orders constituted 2% of the total order inflow of the segment.

The Order Book of the segment stood at ₹ 8,581 crore as on June 30, 2020, with a 20% international component.
Defence Engineering segment recorded customer revenue of ₹ 473 crore registering a y-o-y decline of 49% over the corresponding quarter of the previous year due to delay in procurement of materials on account of nation-wide lockdown.
International Revenue constituted 19% of the total customer revenue of the segment.
The EBITDA margin of the segment at 12.9% was lower for the quarter ended June 30, 2020 as compared to the corresponding quarter of the previous year at 16.6%, mainly on account of under-recovery of overheads and delay in realisation of price variation claims.
Hydrocarbon Segment
Hydrocarbon segment secured orders valued at ₹ 1,220 crore during the quarter ended June 30, 2020, a decline of 64% compared to corresponding quarter of the previous year, with relatively muted tendering activity in a global low oil price scenario. Orders received during the quarter being from Middle East, there were no domestic order wins during this period for the segment.
The Order Book of the segment stood at ₹ 42,094 crore as at June 30, 2020, with the
international order book constituting 49% of the total Order Book.
Hydrocarbon segment recorded Customer Revenue of ₹ 3,062 crore during the quarter ended June 30, 2020, registering y-o-y decline of 19% due to slow progress in construction and fabrication work. International Revenue constituted 51% of the total customer revenue of the segment.
The EBITDA margin of the segment at 5.3% was lower for the quarter ended June 30, 2020 as compared to the corresponding quarter of the previous year at 7.6% mainly due to impact of cost pressures created on project margins by under recoveries during the lockdown.
IT & Technology Services (IT&TS) Segment

As Mindtree Limited was consolidated from second quarter of FY 2019-20, the previous year Q1’FY 2019-20 does not include performance of Mindtree Limited.  Hence the current period is not comparable with the previous period on a like-tolike basis.
IT & Technology Services segment achieved Customer Revenue of ₹ 6,028 crore during the quarter ended June 30, 2020, registering a growth of 58%. The growth was led by consolidation of Mindtree and growth in L&T Infotech Group.
International sales constituted 93% of the total customer revenue of the segment for the quarter ended June 30, 2020.
The EBITDA Margin for IT&TS segment declined to 20.7% for the quarter ended June 30, 2020 as compared to the corresponding quarter of the previous year at 23.2%, mainly due to drop in manpower utilisation and pressure on pricing during the pandemic.
Financial Services Segment
Financial Services segment recorded Customer Revenue of ₹ 3,284 crore during the quarter ended June 30, 2020, a y-o-y decline of 5% which is symptomatic of the sectoral contraction of business in the NBFC space. With this the Loan Book was marginally lower at ₹ 98,879 crore as compared with June’19 at ₹ 99,904 crore.
The operating margin of the financial services segment for the quarter ended June 30, 2020 was lower as compared to the corresponding quarter of the previous year on account of higher credit cost due to COVID-19 related provisions as per RBI guidelines and increased macro prudential provisions, partly offset by gains from divestment of the wealth management business.
Developmental Projects Segment
Developmental Projects Segment registered Customer Revenue of ₹ 554 crore during the quarter ended June 30, 2020, recording a decline of 53% over the corresponding quarter of the previous year, on account of lower offtake from Nabha power plant by the state of Punjab and shut down of Metro services during lockdown period in Hyderabad city.
The EBITDA Margin of the segment for the quarter ended June 30, 2020 declined to 7% as compared to 10% during the corresponding quarter of the previous year on account of shutdown of operations in Hyderabad Metro.
“Others” Segment
“Others” segment comprises Smart World and Communication, Realty business, Construction & Mining Machinery, Rubber Processing Machinery and Valves business. Customer Revenue of “Others” segment during the quarter ended June 30, 2020 at ₹ 714 crore registered a decline of 51% over the corresponding quarter of the previous year. The decline was mainly in Realty business, which in the previous year included higher handover of residential units in 2 projects in Mumbai. Construction Equipment and other allied businesses have recorded a decline with lower demand
for wheel loaders, excavators and rubber processing machinery. Smart World and Communication business also registered decline, as new projects are yet to pick up execution momentum. International sales constituted 18% of the total customer revenue of the segment, mainly driven by Valves business.
During the quarter ended June 30, 2020, the segment EBITDA margin stood at 6.7%, lower as compared to 19.9% margin in the corresponding quarter of the previous year. Current quarter margins were impacted by sharp contraction in Realty business revenues and under-recovery of overheads in the product businesses. 

Electrical & Automation Segment (Discontinued Operations)
The Company is on course to complete the divestment of its Electrical & Automation business to Schneider Electric. The sale is expected to conclude in FY 2020-21.
The segment clocked Customer Revenue of ₹ 711 crore during the quarter ended June 30, 2020 registering a decline of 48% over the corresponding quarter of the previous year on reduced industrial offtake due to COVID-19. International Revenue constituted 36% of the total customer revenue of the segment for the quarter ended June 30, 2020.
The EBITDA margin of the segment at 2.5% was lower for the quarter ended June 30, 2020 as compared to the corresponding quarter of the previous year at 16.9% mainly due to under-recovery of overheads in constrained conditions of low manufacturing capacity utilisation and disrupted distribution & supply chain ecosystem.
Outlook
The Indian economy has witnessed simultaneous demand and supply shocks consequent on multi-phased lockdowns imposed by the Central and State Governments in an attempt to contain the pandemic. Government announced several measures to alleviate the effect of the economic distress such as loan moratoriums, extension of concession periods, increase in the borrowing programs
of the Central and State Governments, announcement of ‘Atmanirbhar Bharat Abhiyaan’ package which included structural reforms as well as relief measures.
With partial lifting of lockdown and graded resumption of business operations, the domestic economy is expected to improve incrementally over the next few quarters. Ordering activity in roads, urban infra particularly health care, railways, Water distribution and waste-water treatment and irrigation sub-segments are expected to pick up in the later part of the fiscal year.
On the global front, the coronavirus continues to cause concern and economic activity is expected to remain depressed for most of the current fiscal. World over, geo-political disputes with China are escalating and businesses globally are contemplating strategic shifts in the supply chain sourcing ecosystem. Further with

increasing protectionist policies and soft oil prices, timelines and strength of economic recovery remains uncertain.

Against the backdrop of this intractable business environment, the Company has been pursuing a multi-pronged strategy to weather the economic crisis and restoring normalcy in business operations, while complying with all Governmental directives and measures to ensure safety of its customers, employees and contract staff.
Labour availability and productivity, working capital levels, Balance Sheet health and pick-up in execution pace is constantly monitored. The Company’s focus continues to be on responsible resumption, profitable execution of its large Order Book with higher operational efficiencies, liquidity management, tight expense control and successful transitioning to a new work environment. 

Background:
Larsen & Toubro is an Indian multinational engaged in technology, engineering, construction,
manufacturing and financial services with over USD 21 billion in revenue. It operates in over
30 countries worldwide. A strong, customer–focused approach and the constant quest for top-class
quality have enabled L&T to attain and sustain leadership in its major lines of business for
eight decades.


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