Chief financial officer R. Shankar Raman calls the segment the infrastructure heavyweight’s ‘new baby’; company sees 36% rise in net profit in Q1.

Larsen & Toubro (L&T), India’s largest private engineering and construction company, on Wednesday reported a 36% rise in net profit for the quarter ended in June from a year ago. Net profit stood at Rs 1,215 crore, a significant jump from Rs 893 crore in the previous year.

Revenue from operations saw a near 18% growth, going from Rs 23,989.79 crore in the first quarter of FY18 to Rs 28,283.45 crore this year.

Speaking at a press conference in Mumbai on Wednesday, L&T’s chief financial officer R. Shankar Raman said earnings before interest, taxes, depreciation and amortisation saw a growth of 40% y-o-y. He added that contrary to expectations of international orders slowing down due to geopolitical and other macroeconomic headwinds like high crude oil prices, the company saw international orders rise 19% in Q1. The company saw a 37% year-on-year (y-o-y) increase in new order inflows to the tune of Rs 36,142 crore for the first quarter of FY19 as against Rs 26,400 crore last year.

Raman went on to say that as part of internal restructuring the metallurgical and material handling business (MMH) was reclassified from the “Others” segment to the “Infrastructure” segment; and that defence engineering was carved out as a separate segment and was no longer clubbed with heavy engineering.

The company now seems to be focusing on defence engineering as a crucial business for its future growth strategy. “Defence engineering is the company’s new baby… It is a business for the future,” Raman said, adding that India would do well to focus on putting policies and procedures in place to boost domestic manufacturing in this space.

SN Subrahmanyan, CEO and MD of the company, echoed Raman’s views on defence engineering. “Defence is a good sector to be in. Over the last decade we have built strategic assets to make India self reliant in this space,” he said, adding that L&T’s long term bet was on the defence space.

L&T recently delivered an offshore patrol vessel to the Indian Coast Guard ahead of schedule in April 2018. It had also won the Rs 4,500 crore contract of supplying 100 K9 Vajra-T guns in partnership with a South Korean defence company. Analysts are of the view that L&T is trying to position itself for an upcoming multi-billion-dollar contract to build six new submarines.

Subrahmanyan also said that the company was trying to get a good start in FY19 given that there is a general election around the corner and orders from the government may slow down once the code of conduct is enforced before the polls.

“We are trying to put in place a mechanism to move orders within the first nine months of the year,” he said, adding that there is also some pressure on the government to try and roll out as many projects and contracts as they can to display a good report card to the public before the polls.

However, Raman clarified that the pressure to move orders in the first part of the year does not mean L&T will engage in reckless bidding.

The company also said it has successfully completed the divestment of the Kattupalli Shipyard, clocking a one-time gain of Rs 355 crore from the monetisation of the asset.

L&T said it is on track to achieve its guidance of a 25 basis point improvement in margins for FY19. In the fourth quarter of last fiscal year, L&T’s margins stood at 10.5%.