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For capital goods companies, order inflow and management commentary should be the key
things to watch for. For Power Utilities, coal shortage will likely be the key focus area. We
prefer L&T, Crompton, PowerGrid and NHPC on valuation and/or other company-specific
strengths.
Capital goods: Order inflow and management commentary should be the key
We expect capital goods companies to post healthy revenue growth (excluding Areva T&D
and Crompton Greaves) for the quarter ended September on the back of healthy order
backlog. We expect companies to report muted order inflow during the quarter. L&T’s order
inflow and revenue growth guidance for FY12 will be a keenly watched as consensus
expects a mid-term downward correction. In the T&D equipment space, rising competition
(Chinese and Korean) and rising commodity prices do not augur well for the companies;
management commentary on this along with guidance for FY12/13 will be key issues. In the
space, we prefer Crompton and L&T on valuation comfort and their company-specific
strengths and as multisegment/multicountry plays partly negate slowdowns in one segment
or country by an uptick in another. BHEL’s absolute downside might be limited, but we do not
expect to see any outperformance until business prospects improve and/or it diversifies into
areas to counter the slowdown in power.
Power utilities: Coal shortage to be the key focus area
India commissioned 3.6GW capacity during 2QFY12 and 7.2GW during 1HFY12 vs the
target of 17.7GW in FY12. For FY12 (till September), reported thermal PLF at 71.28% was
down 80bp yoy. The thermal generation has been impacted due to higher hydro and nuclear
generation, fuel shortage and SEBs back-down request. 1HFY12 base deficit is down 360bp
yoy to 6%. In 2QFY12, average spot rates at IEX stood at Rs2.9/unit (down by 5% yoy, down
6% qoq) on account of seasonal factors. Policy makers have begun to find structural
solutions to pressing issues such as coal shortage, distribution losses, but implementation
could take a while, impacting investments and creating a negative feedback loop. We prefer
relatively insulated companies such as Powergrid (transmission play) and NHPC (hydro play); we
recommend Hold on the thermal plays until there is macro/micro clarity on key issues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For capital goods companies, order inflow and management commentary should be the key
things to watch for. For Power Utilities, coal shortage will likely be the key focus area. We
prefer L&T, Crompton, PowerGrid and NHPC on valuation and/or other company-specific
strengths.
Capital goods: Order inflow and management commentary should be the key
We expect capital goods companies to post healthy revenue growth (excluding Areva T&D
and Crompton Greaves) for the quarter ended September on the back of healthy order
backlog. We expect companies to report muted order inflow during the quarter. L&T’s order
inflow and revenue growth guidance for FY12 will be a keenly watched as consensus
expects a mid-term downward correction. In the T&D equipment space, rising competition
(Chinese and Korean) and rising commodity prices do not augur well for the companies;
management commentary on this along with guidance for FY12/13 will be key issues. In the
space, we prefer Crompton and L&T on valuation comfort and their company-specific
strengths and as multisegment/multicountry plays partly negate slowdowns in one segment
or country by an uptick in another. BHEL’s absolute downside might be limited, but we do not
expect to see any outperformance until business prospects improve and/or it diversifies into
areas to counter the slowdown in power.
Power utilities: Coal shortage to be the key focus area
India commissioned 3.6GW capacity during 2QFY12 and 7.2GW during 1HFY12 vs the
target of 17.7GW in FY12. For FY12 (till September), reported thermal PLF at 71.28% was
down 80bp yoy. The thermal generation has been impacted due to higher hydro and nuclear
generation, fuel shortage and SEBs back-down request. 1HFY12 base deficit is down 360bp
yoy to 6%. In 2QFY12, average spot rates at IEX stood at Rs2.9/unit (down by 5% yoy, down
6% qoq) on account of seasonal factors. Policy makers have begun to find structural
solutions to pressing issues such as coal shortage, distribution losses, but implementation
could take a while, impacting investments and creating a negative feedback loop. We prefer
relatively insulated companies such as Powergrid (transmission play) and NHPC (hydro play); we
recommend Hold on the thermal plays until there is macro/micro clarity on key issues.
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