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India Equity Research Reports, IPO and Stock News
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Earnings downgrades priced in, margins may
lead recovery
■ While we do not expect any significant recovery in CGL’s earnings in the
near term given the weak order inflows over the past few quarters, we are of
the view that most of the earnings downgrades are behind us. From the point
of view of macro, we expect that the T&D sector is likely to see a recovery in
the second half driven by a likely increase in pace of commissioning of
generation capacity over the next two years. Although volume growth may
recover, the strength of recovery for incumbents such as CGL will be a
function of the competitive activity in the sector. We see less risk to further
downside in the industrial business and expect the consumer business to
recover over the next few quarters.
■ From 2004, CGL has seen continuous earnings upgrades driven by the
strength of core business and acquisitions. Given the poor 1Q performance,
earnings have been revised down significantly for CGL for the first time in
the past five years. However, recovery in margins coupled with large order
wins in the T&D sector is expected to commence the next earnings upgrade
cycle for CGL.
■ Given the weak fundamentals, the stock has corrected 43% over the past
two months with valuations close to 2008-09 crisis levels. Relative to the
T&D sector (peers being ABB, Siemens and Areva) CGL still trades at ~50%
discount, its steepest till date. Although near-term catalysts are limited, we
are starting to see value emerge in the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Earnings downgrades priced in, margins may
lead recovery
■ While we do not expect any significant recovery in CGL’s earnings in the
near term given the weak order inflows over the past few quarters, we are of
the view that most of the earnings downgrades are behind us. From the point
of view of macro, we expect that the T&D sector is likely to see a recovery in
the second half driven by a likely increase in pace of commissioning of
generation capacity over the next two years. Although volume growth may
recover, the strength of recovery for incumbents such as CGL will be a
function of the competitive activity in the sector. We see less risk to further
downside in the industrial business and expect the consumer business to
recover over the next few quarters.
■ From 2004, CGL has seen continuous earnings upgrades driven by the
strength of core business and acquisitions. Given the poor 1Q performance,
earnings have been revised down significantly for CGL for the first time in
the past five years. However, recovery in margins coupled with large order
wins in the T&D sector is expected to commence the next earnings upgrade
cycle for CGL.
■ Given the weak fundamentals, the stock has corrected 43% over the past
two months with valuations close to 2008-09 crisis levels. Relative to the
T&D sector (peers being ABB, Siemens and Areva) CGL still trades at ~50%
discount, its steepest till date. Although near-term catalysts are limited, we
are starting to see value emerge in the stock.
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