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The J.P. Morgan European Capital Goods Team has cut earnings estimates
for its coverage universe by 20% for CY12 after incorporating lower global
GDP growth expectations and analyzing a host of leading macro indicators.
The team, led by Andreas Willi, expects the earning risk to remain on the
downside. See the detailed note "Cutting Estimates, near term downside risks
remain". Drawing inputs from a bleaker outlook for DM growth, we cut CG's
overseas power segment revenue estimate (with 30% exposure to DM) for
FY13 by another 5.5%. Our revised FY13 EPS of Rs11.75 (down 2.4%)
remains well below Bloomberg consensus (Rs14.5). We recommend a sell on
rallies.
Weak macro and deteriorating lead-indicators in DM. Our European Cap
Goods team assumes a global GDP growth scenario of ~2%, Europe growth of
0% and US growth of 1% over next 12-18 months. European manufacturing
indicators contracted in August (the lowest in two years), extending their
moderation since Apr-11. The Euro area and US PMI for new orders has also
tapered down sharply. Another leading indicator, the US ISM index, is
precariously close to the onset of recession. See charts reproduced from our
European team's research inside this report.
Industrialists’ confidence tumbling again? A quarterly survey by our
European Cap Goods team to analyze the level of confidence of 300 industrial
companies shows that- (a) Companies have recovered only half the decline in
confidence level since the 2007 peak, (b) Companies with a 'high' confidence
level saw a dip in 2QCY11.
Maintain UW. Our Mar-12 DCF revised PT of Rs125 (vs.Rs135 earlier),
implies ~14x FY12E EPS (Rs9/share, unchanged). Besides a FY13E EPS cut of
2.4%, we have reduced our terminal growth rate post FY18 to 5.5% (down
50bps). Over the last 1-3 months CG has underperformed the Sensex by 3.5%-
35%. We recommend a switch to Siemens India (SIEM IN, Rs860, OW) within
the T&D space. Healthy domestic order inflows are a key upside risk to
estimates and PT. We believe open-market stock purchases by the promoter
since 18th Aug (0.225% of shares outstanding) has led to the rally from Rs139
levels (~10%), but this may not be sustainable.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The J.P. Morgan European Capital Goods Team has cut earnings estimates
for its coverage universe by 20% for CY12 after incorporating lower global
GDP growth expectations and analyzing a host of leading macro indicators.
The team, led by Andreas Willi, expects the earning risk to remain on the
downside. See the detailed note "Cutting Estimates, near term downside risks
remain". Drawing inputs from a bleaker outlook for DM growth, we cut CG's
overseas power segment revenue estimate (with 30% exposure to DM) for
FY13 by another 5.5%. Our revised FY13 EPS of Rs11.75 (down 2.4%)
remains well below Bloomberg consensus (Rs14.5). We recommend a sell on
rallies.
Weak macro and deteriorating lead-indicators in DM. Our European Cap
Goods team assumes a global GDP growth scenario of ~2%, Europe growth of
0% and US growth of 1% over next 12-18 months. European manufacturing
indicators contracted in August (the lowest in two years), extending their
moderation since Apr-11. The Euro area and US PMI for new orders has also
tapered down sharply. Another leading indicator, the US ISM index, is
precariously close to the onset of recession. See charts reproduced from our
European team's research inside this report.
Industrialists’ confidence tumbling again? A quarterly survey by our
European Cap Goods team to analyze the level of confidence of 300 industrial
companies shows that- (a) Companies have recovered only half the decline in
confidence level since the 2007 peak, (b) Companies with a 'high' confidence
level saw a dip in 2QCY11.
Maintain UW. Our Mar-12 DCF revised PT of Rs125 (vs.Rs135 earlier),
implies ~14x FY12E EPS (Rs9/share, unchanged). Besides a FY13E EPS cut of
2.4%, we have reduced our terminal growth rate post FY18 to 5.5% (down
50bps). Over the last 1-3 months CG has underperformed the Sensex by 3.5%-
35%. We recommend a switch to Siemens India (SIEM IN, Rs860, OW) within
the T&D space. Healthy domestic order inflows are a key upside risk to
estimates and PT. We believe open-market stock purchases by the promoter
since 18th Aug (0.225% of shares outstanding) has led to the rally from Rs139
levels (~10%), but this may not be sustainable.
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