about 2 months ago
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The earnings commentary of L&T was very intriguing, showing us the true picture on the ground.

Though the company did very well, it could have done much better but for the delays in issuing tenders by the Central and State Govts. This delay is issuing tenders is what led to the company missing most estimates, yet project executions led to a 38% (YoY) rise in consolidated revenues at Rs.29.335 crore and a four-fold rise in net profit at Rs.1174 crore.

In the post-earnings conference call, the CFO, Mr. R Shankar Raman said that the quantum of tenders that were deferred from quarter one to subsequent quarters have been almost to the order of 40% of the level that was expected, as we got into the year. He said that delayed decision-making due to unavailability of government officers with the rise in Covid-19 infections during April and May pushed back the tendering momentum.

Looking ahead, the management of L&T, which is actually the pulse of the country’s infrastructure sector growth, expects direct orders from the Govts, state as well as central, to slow down as they are expected to spend more on the pandemic related and other social issues. On the other hand, it expects the private sector to shore up spending, especially in minerals, metals, data centers and buildings, which will help L&T keep its balance of order inflow intact.

That’s the question we have today – all those big billions and trillions worth of stimulus announced notwithstanding, shouldn’t the Govt speed up the tendering process and roll out orders, which in turn will generate large scale employment opportunities across the country and not just MNREGA? For all the talk, despite the deficit, the Govt needed to have concentrated more on getting out tenders, isn't it?

Well, one will argue that the amidst all this spending for the pandemic, naturally, the tendering process is delayed as the work is disrupted due to the lockdown and the Govt is short of funds too. But a report of the revenue and expenditure math put out by CMIE shows us two things – firstly, the govt managed to garner non-debt receipts of Rs.3.5 trillion during April-May 2021 – the highest non-debt receipts mobilised by the Centre during the first two months of any fiscal, ever. This was largely due to RBI’s huge dividend of Rs.991.2 billion to the Centre for the period July 2020-March 2021. RBI record dividend apart, its net tax revenue also peaked at Rs.2.3 trillion, thereby helping the Centre achieve 15.1% of its annual net tax revenue target in the first two months of the fiscal. 

So, while revenue grew, the spend should have gone up in tandem, right? Well, the exact opposite happened. The Govt spent just 13.3% of its annual budgeted expenditure during April-May 2021, which is much lower than even its 5-year average spend of 18.2%.

Thus the Govt chose to keep its expenditure low despite having adequate resources to finance it. It was sitting on cash investments of Rs.1.2 trillion during April-May 2021.

Thanks to the earnings from L&T, what we understand is that the Govt has the means but is not doing much to push growth and employment via capital expenditure. It had no stimulus for the more intense second wave and there is nothing planned ahead too. Glad L&T is optimistic about the private sector stepping up; maybe thats what the Govt is also banking on.

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