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CAPITAL GOODS
Current view
q Reflecting the buoyant mood in the economy, the capital goods index, which is
barometer of the growth in the sector has posted decent gains in the current
fiscal. For the period Apr-Dec 2010, capital goods index rose 21.5% yoy. However,
the question remains how strong is the capital goods cycle. Management
commentary indicates that order enquiries have been continuously improving,
but we are nowhere closer to the boom in capital goods that we saw in 2007-
08.
q Several factors are pulling back the growth of the sector including increasing
delays in project activity due to longer time on land acquisition and environmental
clearance. Sluggish decision making is also stalling the growth in infrastructure
activity. This happens to be the case in road building and Oil and Gas.
Competitive scenario has also increased with several large orders being placed
with the Chinese suppliers. In Transmission and Distribution equipment, availability
of unutilized capacity is leading to margin erosion and higher capital engagement.
Another concern is inflation which has negative implications for sector
in terms slowdown in investment activity as well as increase in costs. Material
prices have also inched up, which is an important parameter to monitor.
q The third quarter results of the sector were largely mixed, with there being clear
disappointment in order intake. While L&T, BHEL and Thermax reported strong
earnings numbers, Voltas, Blue Star, Cummins and BEL reported profits that
were lower than expectations.
q Our preferred picks are L&T, BHEL, Thermax, Cummins, Greaves Cotton, BEL
and Voltas.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CAPITAL GOODS
Current view
q Reflecting the buoyant mood in the economy, the capital goods index, which is
barometer of the growth in the sector has posted decent gains in the current
fiscal. For the period Apr-Dec 2010, capital goods index rose 21.5% yoy. However,
the question remains how strong is the capital goods cycle. Management
commentary indicates that order enquiries have been continuously improving,
but we are nowhere closer to the boom in capital goods that we saw in 2007-
08.
q Several factors are pulling back the growth of the sector including increasing
delays in project activity due to longer time on land acquisition and environmental
clearance. Sluggish decision making is also stalling the growth in infrastructure
activity. This happens to be the case in road building and Oil and Gas.
Competitive scenario has also increased with several large orders being placed
with the Chinese suppliers. In Transmission and Distribution equipment, availability
of unutilized capacity is leading to margin erosion and higher capital engagement.
Another concern is inflation which has negative implications for sector
in terms slowdown in investment activity as well as increase in costs. Material
prices have also inched up, which is an important parameter to monitor.
q The third quarter results of the sector were largely mixed, with there being clear
disappointment in order intake. While L&T, BHEL and Thermax reported strong
earnings numbers, Voltas, Blue Star, Cummins and BEL reported profits that
were lower than expectations.
q Our preferred picks are L&T, BHEL, Thermax, Cummins, Greaves Cotton, BEL
and Voltas.
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