No Ramp-Up In Margin For L&T Yet Due To Low Margin Legacy Orders: Prabhudas Lilladher | CNBC TV18

Well, let’s turn the spotlight back on to L&T. They delivered a steady quarter. They beat the guidance on the revenue growth and the order inflow for F524. The company has now guided for 10% order inflow growth in F525. Mr. R Shankaraman, the whole time Director and CFO of L&T, during the conference call responded to my colleague Vivek Iyer’s question on the F525 order inflows and guidance. Let’s listen in on top line. Since we have had a very large base of orders of almost 3,00,000 crore and considering that maybe four or five months we might lose out in the government formation, new government, all of that political issues, we have assessed a growth of around 10% in terms of fresh order intake for the FI 25. But looking at our order book of 4.75 trillion, we do think that the revenue growth could be around 15% or thereabouts. We do think that the margins that we will report on 15% revenue growth for the core businesses would be around the current levels, which is 8.25 thereabouts. All right, that’s Mr. Ramen. On the outlook ahead for the year, let’s take this up with the Amit Anwani, research analyst at Prabhu Das Leela Dhar. Amit, thanks for joining in. So I think the big question with L&T is whether the market is going to go with absolutely stellar growth at the order book, 30%. And on top of that, they’re guiding for 10% next year. Fantastic move on revenues. They’ve beaten their own guidance. Or will the market remain hung up on the fact that margins are not improving? And this is not a new complaint, This is a long pending issue where we’re hoping that those legacy orders kind of you know play out and then the margin profile starts improving. The management is saying may not happen in FY25 what’s what’s your thought? Yeah, thanks Sobi. So definitely I would say on margin there, there has been expectations from almost five to six quarter plus that there should be the ramp up in margin. And continuously we are seeing the infra margins holding on the similar or trending downward. And obviously because of the product the project makes the legacy execution happening which was taken during COVID. We did expected that there should be a margin improvement since this robust intake which came in from the international orders. But the company did guided that this orders might be again similar or lower with respect to margin to domestic business, but there could be major return on equity improvement which can happen because of the superior working capital terms which they can get in the international markets. So what I believe is obviously there may not be the expectations now that there will be improvement in margin in FY25. But having said that, the way the balance sheet has been managed with 12% working capital to sales this year and similar kind of the better guidance for FY25 SL with respect to working capital of others conglomerate like LNT and working capital is very important aspect in in this industry. And on the top of it on the high base of growth which they have witnessed this year, I think 10% also would be command able for FY25 with respect to order intake. And what we can gather from the commentaries that this time around again the prospects of right in, in the Middle East GCC countries and there should be ramp up happening in the domestic orders as well in FY25 despite the election year. So apart from this, I think apart from 15% guidance, I still believe that there would be 1314% growth coming in FY20 6 as well and maybe FI 26 we can see the margin improvement once the mix changes and sure Amit completely out. Yeah you know I just wanted to point out that in the pre open L&T is the weakest stock on the index. We flashing the numbers, let’s also flash the stock Right now it’s done about 4% and the markets verdict is clear market simply it’s a question of the glass half full or half empty and for L&T for whatever reason the markets latching on to the glass half empty bit order book fantastic revenues great. But its the margin that the you know the market seems to be completely hung up on and that was my question you know Amit, So what are your own estimates baking in right now? The stock has rallied 40% in the last one year. How do current valuations look and what do you make of the fact that its just the margin, the markets not even looking at the other positives? Is that how you would also view it and what’s the advice on L&T? So definitely since there was an expectation that it was guided that starting Q1Q2 there would be some stabilization on improvement in margin. So we can expect some near term in military action. But I think with with respect to the other intake which has been building up our top line growth assumptions about 14% Gaga and for the core business margin despite keeping similar levels, we are assigning 26 X multiple and my SOTP valuation is coming roughly about 4047. So I think the long term to medium term outlook, we can keep it positive. On the back of as I said this year also the 40% turn up came up because of the major surprise on the intake starting from 1015%, the company delivered 31% growth and I think they have also pointed out to the stronger GCC prospects still panning out in FY25. So I think on the high base, even if 1012% growth, I think there’s a visibility there despite the near term impact on margins, which is there in FY25. I think with longer view still there could be value in the stock at this price. Alright, Ahmed, we’ll leave it there. Thank you very much for your time. Good speaking with you here on CNBC TV18.