INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group : To be or not be in the stock: For investors in Larsen Toubro, this is a complex question to answer before India
votes to elect its next government.
Typically, investors believe that orders for infrastructure, construction and engineering companies
moderate ahead of general elections
But this perception appears to be a misnomer for LT, based on the historical trend of order inflows in the quarters ahead of previous
the general election in the range of 31-65 per cent and continued until the December quarter
Local engineering and construction (EC) orders in the March quarter before the general election in 2004, 2009 and 2014 rose 187 per cent, 65
per cent and 19.8 per cent, respectively.
This time, too, the proportion of government orders in the total kitty has risen considerably in
the past few quarters.
Any moderation in order inflows is a key concern for investors of infrastructure companies because the Street assigns
between order activity pick-up for LT in the run-up to general elections historically, and we do not expect any change in pattern for the
May 2019 elections either, given that the overall infrastructure ordering pipeline across the central and various state governments is
past two general election years.
Based on the historical trend, the Street expects order inflow growth in FY19 to be front-loaded
Typically, however, the share of order inflows for infrastructure companies in the second half is significantly higher than the first half
The Street is pricing in order inflow growth of 12-15 per cent in FY19 and FY20 as compared with an expectation of 2-3 per cent for FY18
Order inflows in the first nine months of FY18 for LT grew 8 per cent to Rs 1.03 lakh crore; yet, the company has maintained a flattish
order inflow guidance for FY18.
