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L&T profit lags behind estimates as India cash crunch hurts projects

MUMBAI (NewsRise) -- Larsen & Toubro posted a weaker-than-expected quarterly profit and lowered its annual revenue growth outlook, as India's largest engineering and construction company grappled with delays in executing orders amid a cash shortage at home.

L&T's profit rose 39% to 9.72 billion rupees ($143 million) in the quarter ended Dec. 31, from 7 billion rupees a year earlier, the Mumbai-based company said in a statement on Saturday. Analysts had expected a profit of around 10.83 billion rupees.

Total revenue increased 1.4% to 262.87 billion rupees, while the company's order book, a key indicator of demand, rose by a similar proportion to 2.59 trillion rupees at the end of December. International contracts continued to account for a third of the total orders.

L&T's profit lagged behind estimates amid a cash crunch in the south Asian nation, after New Delhi abruptly pulled back high-value notes that accounted for 86% of the currency in circulation, in a bid to crack down on corruption. The government move in November has undermined the growth of construction and real estate sectors that depend heavily on cash transactions.

Construction accounts for a third of L&T's infrastructure business, its largest revenue generator.

"The government's initiatives to curb the parallel economy, and make a transition to cashless economy have caused disruption, whose impact on the business sentiment is yet to be conclusively assessed," L&T said in the statement. "The challenging business conditions are expected to continue in the next few quarters until the government moves to lift growth through infrastructure spending and tax reforms take effect."

The company, which has businesses spanning from metro trains to gas pipelines and submarine parts, now expects its order inflow and revenue to grow 10% this fiscal year, down from its previous forecast of an up to 15% growth in order inflow and revenue growth.

The government places out a lot of pending orders in the fourth quarter to exhaust its budgets, said R. Shankar Raman, L&T's chief financial officer. "Factoring that surge in the fourth quarter, we do expect to reach about 10% growth this fiscal year."

L&T has been reporting slower earnings growth over the last one year, hurt by stalled projects as private investments dried up.

"L&T continues to face multiple execution headwinds such as delays in getting right-of-way and clearances, liquidity crunch at customers' end affecting the time-to-market for projects and delays in securing investment clearances from banks," Religare Institutional Research said in a report. "We feel challenges on execution, order inflows, and divestments will persist for the next one or two years."

L&T had last year set an ambitious target to achieve revenue of 2 trillion rupees by fiscal year 2021, and an order inflow of more than 2.5 trillion rupees per year. It is relying on the faster pace of expansion in the technology and financial services businesses to offset slowing growth in its core infrastructure business.

Shares of L&T gained 0.26% in Mumbai trading, while the benchmark S&P BSE Sensex lost 0.12%.

--Dhanya Ann Thoppil

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