Contrasting results from Indian contractors

24 October 2011

Indian contractor Larsen & Toubro (L&T) reported a +4.3% rise in net profit to INR 798 crore (US$ 160 million) for the quarter ended 30 September, while Hindustan Construction Company (HCC) slipped to a net loss of INR 40.5 crore (US$ 8.1 million) for the period.

Both contractors said they were feeling the impact of the global economic slowdown. L&T, whose net profit rose +15% year-on-year and revenues grew +20% to INR 11375 crore (US$ 2.3 billion), said growth opportunities were being constrained by a slowdown in investment momentum in the Indian economy.

"Intensified competition, high inflation, elevated interest rates, volatile financial markets and delayed policy intervention are posing considerable challenges for the decision-makers," L&T said, adding that it nevertheless saw itself in a strong position to maintain revenue growth in the future.

HCC chairman and managing director Ajit Gulabchand also highlighted high inflation and interest rates as having impacted its results, together with "significant delays in awarding new infrastructure projects".

The contractor's second quarter net loss compared to profit of INR 12.1 crore (US$ 2.4 million) for the quarter ended 30 September, 2010. Revenues for the period stood at INR 837.7 crore (US$ 168 million), compared to INR 898.5 crore (US$ 180 million) for the same quarter in 2010.

Project delay

Aside from the impact of economic volatility, HCC's business has also been affected by an order from the Bombay High Court to halt work on a development being managed by its Lavasa subsidiary.

Construction was forced to stop on the hill city project near Pune, Maharashtra, in November last year, and legal arguments over environmental compliance have continued ever since.

Nevertheless, Mr Gulabchand was optimistic for long-term market prospects. "With the interest rates cycle peaking and the government focused on reviving economic growth, a pickup in new project awards and a subsequent reduction in financing costs, is expected," he said.