Shares in Larsen & Toubro slumped as much as 7.6 per cent on Monday before recovering a bit in an otherwise flat Mumbai market, after the Indian engineering and technology company reported disappointing results for the quarter ended in June.

The group said net profits were down 12.5 per cent year-on-year to Rs7.56bn, in spite of a 5 per cent year-on-year increase in net sales to Rs125.55bn.

Compare that with forecasts from analysts at Mumbai-based Angel Broking, who expected net profits of Rs9.1bn, a 1.6 per cent year-on-year increase, based on strong order inflows in the past few quarters.

Viral Shah, an infrastructure analyst at the brokerage, said L&T’s margins were a big disappointment, at 8.5 per cent in the first quarter of the current fiscal year compared with 9.1 per cent a year earlier. Order book expansion was strong, up 8 per cent year-on-year to Rs1,653.93bn. So the concern is that recent strong orders were a result of aggressive pricing rather than a strong market.

The company maintains its full year guidance of 15 to 17 per cent growth in sales.

But bad news from L&T is bad news for the economy, reflecting a slowdown in construction and infrastructure projects. L&T said in a statement:

Resolution of long pending issues affecting the core sectors, specific measures to boost domestic manufacturing, increased resource allocation for infrastructure sector and further push on next generation reforms are necessary to provide the much needed impetus for investment and growth in India.

Related reading:
L&T chases bigger slice of Indian market, FT
Reliance Industries profits boosted by weaker rupee, FT
Infosys: shares jump on upbeat results, beyondbrics

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