Bloomberg News

Larsen Rises Most in 11 Months After RBI Ratio Cut: Mumbai Mover

January 24, 2012

Jan. 24 (Bloomberg) -- Larsen & Toubro Ltd., India’s biggest builder of power networks and airports, jumped the most in more than 11 months after the central bank cut a reserve requirement for lenders to help boost economic growth.

Larsen advanced 5.8 percent, the most since Feb. 14, to 1,351.85 rupees at close of trading in Mumbai. The stock is headed for its best monthly rally since May 2009. The benchmark BSE India Sensitive Index gained 1.5 percent.

The Reserve Bank of India today unexpectedly reduced the amount of deposits banks must set aside as reserves by 50 basis points, and signaled it may cut interest rates in future. Lower rates will help engineering and construction companies reduce borrowing costs.

“A 50 basis points cut will lead to a situation where companies like L&T will have greater operational leverage in terms of cost of funds,” said Jyotsna Sawdekar, an analyst at Jaypee Capital Services Ltd. in Mumbai. “It’s a very positive indication.”

Larsen yesterday reiterated its new orders will rise by 5 percent in the current fiscal year after announcing an 18 percent increase in third-quarter profit. The company said it plans to boost business in the hydrocarbon and infrastructure industries in the Middle East and Southeast Asia as higher costs and a slowing economy affected projects at home.

The company, based in Mumbai, expects to win orders worth 300 billion rupees ($6 billion) in the fourth quarter, Chief Financial Officer R. Shankar Raman said yesterday. Sales in the year ending March 31 may expand as much as 25 percent, he said.

Financial Investments

New contracts in the third quarter gained 28 percent to 171 billion rupees, Larsen said in a statement. Profit for the period was also boosted by gains from the company’s revenue from sources other than operations including financial investments, which surged 79 percent.

The BSE India Capital Goods Index lost 48 percent of its value last year as a record run of interest-rate increases by the central bank boosted borrowing costs for companies. Larsen declined 50 percent during the year. The index rose as much as 3.3 percent today.

The central bank has “acknowledged that slowing growth needs to be addressed,” Raman said in a telephone interview from Mumbai today. “Hopefully, the RBI will continue with some more measures for monetary easing.”

--With assistance from Vipin Nair and Rajhkumar K Shaaw in Mumbai. Editors: Vipin Nair, Subramaniam Sharma

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Vipin Nair at vnair12@bloomberg.net


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