L&T: Everything's not in order

The L&T stock has been de-rated in recent months mainly, it would appear, because it acquired a 12 per cent stake in Satyam Computer Services and ostensibly plans to bid for the technology firm. Early last week the stock hit Rs 562, a two-and-a-half-year low and even now it trades at around 610 levels, having lost close to 60 per cent of its value over the past year compared with about 41 per cent for the Sensex.

But the bigger worry now seems to be a loss of momentum in order inflows; L&T had indicated that orders would increase by about 30 per cent in the current year; that target may be missed because of a delay on the part of ONGC in awarding contracts. Besides, a small part of the current order book, which is a robust Rs 69,000 crore (Rs 690 billion), could see delays of between 8-10 months either because clients are still to mobilise the resources or are waiting for some more clarity on demand. While the ONGC order may come through next year, given that cash flows of most companies are strained, L&T's order book may not grow as fast in 2009-10 say industry watchers.  

As such, revenues are expected to grow by about 23-25 per cent next year on the back of an increase in the top line of close to 35 per cent this year. With operating margins expected to come off slightly, the growth in the parent's net profit in 2009-10 is now estimated to grow by sub-10 per cent compared with a rise of around 30 per cent this year. Although L&T has spent around Rs 600 crore (Rs 6 billion) for the Satyam stake, there are those who feel it might be better if the firm didn't win the bid due to the various risks associated with the acquisition.