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Q4 results update: What lies ahead for L&T
Publish date: 1st June, 2018
In the previous piece, we decoded Larson & Toubro’s quarterly results for the January-March 2018 quarter. But investors need to know the future outlook to be able to invest in L&T shares today.
The promise of reforms: Over the last few years, several important reforms have been passed by the government. GST, RERA and IBC are likely to encourage the private sector to spend more on infrastructure. This can augur well for India’s leading infrastructure company. So how will these reforms benefit L&T?
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For starters – GST has replaced multiple taxes such as Central Excise Duty, Services Tax, Additional Customs Duty, Surcharges, State level VAT and Octroi. So, just like how you would prefer paying a single tax over multiple ones, companies are likely to enjoy a better ease of doing business too. Know how GST affects investors
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Some of the aspects of RERA include timely delivery of projects and getting mandatory clearances for a project. This can ensure that only credible builders take up project which will also have a positive impact on the payments due to an infrastructure partner like L&T. Know how RERA is a game changer
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Dispute resolution has been difficult to carry out in India as evidenced by the fact that recovery of dues happens in only 20% of cases. The Insolvency and Bankruptcy Code (IBC) can ensure dispute resolution in a timely manner. This can not only enable creditors to get their dues back but can also offer confidence to the banking and NBFC sectors to increase credit lines. This can also help the private sector spend more on infrastructure projects. Know how IBC can help
Government spending: In Budget 2018, the Indian government allocated close to Rs. 6 lakh crore for spending in infrastructure for 2018-19. (That is 6 followed by 12 zeroes!) This is expected to make up for the fall in private orders.
Yet, it may not be time to start celebrating yet. Government projects have wafer thin margins and it is usually the lowest bidder who receives these projects.
Optimistic Guidance: L&T expects its order inflows to increase by 10-12% and revenues to improve by 12-15% in 2018-19. This matters because stock prices usually track the rise in profits too over a long period of time.
Higher Crude Oil Prices: An interesting point to note would be that higher crude oil prices could also benefit L&T. How come, you may wonder?
Well, the middle-east is a key market for L&T. Increase in crude oil prices could mean higher income for Middle Eastern Countries. This may help them to spend more on capital expenditure and thus, increase existing business relationships with L&T. Yet, currency fluctuations and volatile commodity prices along with conservative spending by Middle Eastern businesses could act as spoilsports.
What next?
Our research experts have put together their recommendation for L&T basis their analysis of its results. The report also has their recommendations for Cummins India Ltd, VRL Logistics Ltd, Talbros Automotive Ltd, VA Tech Wabag Ltd and Time Technoplast Ltd. Click here to read.
