L&T reports a Rs200 crore hedging loss

Mumbai: L&T International FZE, a Sharjah (UAE)-based subsidiary of engineering giant Larsen & Toubro Ltd, is likely to incur a Rs200 crore loss on its bets against a decline in the prices of zinc and other metals, L&T said on Monday.

The disclosure by L&T comes after television channels reported a brokerage call on the issue. L&T had bet against a decline in prices of zinc and other commodities.
 
Zinc prices fell 44 per cent last year, the first annual decline in five years, as metal market turned volatile. The London Metal Exchange index of six primary metals also fell to a 17-month low in December. 
 
"The company has exposure in commodities and part of it is being hedged by it. As per the unaudited numbers, there could be a loss in commodity hedging of around Rs200 crore. The actual number will get crystallised on finalisation of accounts," the company said in a filing with the Bombay Stock Exchange.

L&T, however, did not disclose details of the deals.

With an order book of over $6 billion, L&T has a huge exposure to commodities, mainly metals, of about 40-45 per cent. The company said it had reduced the exposures to a considerable extent, since.

The loss, however, may not affect the forecast for sales or margins of the Sharjah unit for the year, L&T said. The unit had posted a profit of Rs150 crore for the year ended March 31, 2007.

L&T, which identified West Asia as core growth zone, set up the subsidiary in 2001 at the Hamriyah Free Zone, Sharjah.

L&T International, the investment arm of the parent company for all overseas ventures, also hedges the commodity price risk of group companies by transacting in commodity derivative products.

Profits for 2006-07 were Rs132.91 crore and Rs53.43 crore in the previous year, and those were mainly from hedging, hire charges and dividends got from subsidiaries.

L&T shares slipped 10 per cent, its biggest fall in eight years, before closing almost 9 per cent lower at Rs2,731.90 on Monday.