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Indian capital goods and E&C
Dec-q earnings preview and order flow tracker
• Execution expected to remain strong for both L&T and BHEL in Dec-q.
We est. 25% rev. growth for L&T in Dec-q, on a weak base of 3QFY10
(revenue de-grew 6% YoY), stable margins (~12.5%) and 22% PAT growth.
In comparison, BHEL's Dec-q PAT growth (15% YoY est.) is slower but
impacted by an exceptionally strong base qtr of material cost reductions.
• BHEL / L&T did not report any power plant orders in Dec-q; both
would need to report very strong orders in next 3 months to meet
market expectations: BHEL would need to report Rs285B orders in Mar-q
to meet its guidance of flat order inflows in FY11 (~Rs570B): this figure
includes assured NTPC-DVC turbine award for 4x660MW (~Rs29B) and
potential boiler awards. We est. L&T's order inflows at ~Rs160B in Dec-q
(incl. reported orders of ~Rs118B). The implied ask for 4Q is Rs350B, for
L&T to meet FY11 guidance of 25% YoY growth in order inflows. In the
event of a spillover of L&T's captive Hyderabad metro order (~Rs95B) or
NTPC-DVC 11x660MW boiler awards to FY12, inflow guidance for both
BHEL and L&T would be at risk, in our view.
• The implied execution expectation for 4QFY11 is high, as well: Implied
revenue growth ask for L&T is 30% on a high base quarter, while that for
BHEL is 23%, backed by the latter's enhanced capacity to 15GW.
• T&D plays – mixed P/L trend but potential transmission ordering pickup
the silver lining: We expect moderate growth (8.7%) and stable margins
est. for CG. Strong execution expected to continue in Siemens (21%),
though one-off 19.5% margins of Dec-q last year unlikely. We expect PAT
de-growth to continue in ABB in Dec-q, in 9MCY09 sales have dipped
2.7%. So far, PGCIL awards have been tepid, but pick up expected.
PGCIL awarded ~Rs14.6B of transmission contracts, substation orders were
just ~Rs3.1B. A pick up led by High Capacity Power Transmission contract
awards of ~Rs580B is expected thru FY12.
• Punj Lloyd - We est. 2HFY11 revenue decline of 2.7%, contrary to
consensus. Suzlon’s domestic order run intact: YTD inflows of 1.21GW
inspire confidence in domestic growth for FY12. We est. a loss for wind
business at Rs719MM; but a profit of Rs984MM in Dec-q at consol level.
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