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India Equity Research Reports, IPO and Stock News
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Still time for silver lining
Our coverage universe of capital goods delivered subdued performance with a 4% y-o-y revenue growth. Margins for the coverage universe have dipped by 370 bps due to lower realizations and high costs. Profitability for our coverage universe was down by 41% y-o-y due to higher interest cost burden and elongated working capital cycle for companies in the quarter. Order intake declined by 8% y-o-y to approximately ` 43.2bln. Declining order book for the sector has led to revision in estimates; thereby indicating negative outlook for next 2-3 quarters.
Mixed performance on execution front this quarter
Coverage universe’s revenue grew by just 4% y-o-y owing to negative surprises by Voltas and BGR Energy. Within our coverage universe, AIA registered highest revenue growth of 33% y-o-y to ` 3.4bln, mainly driven by highest ever volume growth in its mining segment. Elecon also witnessed strong revenue growth of 20% y-o-y and Jyoti Structures’ revenue grew by 16.5% y-o-y. Amongst large caps BHEL, L&T, Thermax and ABB delivered good numbers with revenue growth in the range of 19-21% y-o-y.
EBITDA declines 26% y-o-y; margins dip by 370bps
EBITDA for the coverage universe de grew by 26% y-o-y; EBITDA margin declined 370bps to 9.2%. Cost overruns due to high commodity prices and lower realizations due to competition continued to dent margins of all companies. Voltas’ EBIDTA margin declind drastically by 760 bps y-o-y and reached to 2.4% due to substantial cost overruns on two Qatar projects. Crompton Greaves margins also fell by 550 bps y-o-y to 8.4% due to higher input cost and lower realization. However, Elecon’s margins improved by 40 bps y-o-y to 14.7%. BGR energy had high margin BOP orders during the quarter which helped the company report highest ever margin of 14.3%.
Declining profits and elongated working capital cycle- a key concern
PAT for our coverage universe declined 41% y-o-y to ` 2.71bln. BGR’s interest cost rose 118% y-o-y due to increase in debt by ` 5bln to ` 23bln. Jyoti Structures interest cost rose by 50% y-o-y due to increase in LC charges and working capital loan; which lowered its profitability by 11% y-o-y to ` 221mln. Deteriorating working capital cycle due to higher debtor days and decline in orders and customer advances has necessitated borrowings for the companies to fund regular working capital requirements; which in turn has impacted profitability.
Order inflow declines 8% y-o-y in Q2FY12
Order inflow for the coverage universe declined 8% to approximately ` 43.2bln. Barring few BTG orders to BHEL and opening of NTPC super critical bulk tenders for BTG, no big announcements were made in the quarter. Only relief came from PGCIL which declared orders worth ` 35.6bln as compared to ` 18.8bln in Q2FY11.
Outlook
Negative factors affecting capital goods sector are not showing any signs to cool off in near term. Recent moderation in raw material prices and pause in interest rates may support profitability. However, major turnaround for the sector depends on pick up in investments which will drive order inflows and tame down the competition. Although, valuations for most of the companies are at all time low, the sector shall underperform the market due to stagnant order book and declining order inflows for few quarters. We continue to maintain our upward bias towards Elecon and AIA on account of attractive valuation and better growth prospects.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Still time for silver lining
Our coverage universe of capital goods delivered subdued performance with a 4% y-o-y revenue growth. Margins for the coverage universe have dipped by 370 bps due to lower realizations and high costs. Profitability for our coverage universe was down by 41% y-o-y due to higher interest cost burden and elongated working capital cycle for companies in the quarter. Order intake declined by 8% y-o-y to approximately ` 43.2bln. Declining order book for the sector has led to revision in estimates; thereby indicating negative outlook for next 2-3 quarters.
Mixed performance on execution front this quarter
Coverage universe’s revenue grew by just 4% y-o-y owing to negative surprises by Voltas and BGR Energy. Within our coverage universe, AIA registered highest revenue growth of 33% y-o-y to ` 3.4bln, mainly driven by highest ever volume growth in its mining segment. Elecon also witnessed strong revenue growth of 20% y-o-y and Jyoti Structures’ revenue grew by 16.5% y-o-y. Amongst large caps BHEL, L&T, Thermax and ABB delivered good numbers with revenue growth in the range of 19-21% y-o-y.
EBITDA declines 26% y-o-y; margins dip by 370bps
EBITDA for the coverage universe de grew by 26% y-o-y; EBITDA margin declined 370bps to 9.2%. Cost overruns due to high commodity prices and lower realizations due to competition continued to dent margins of all companies. Voltas’ EBIDTA margin declind drastically by 760 bps y-o-y and reached to 2.4% due to substantial cost overruns on two Qatar projects. Crompton Greaves margins also fell by 550 bps y-o-y to 8.4% due to higher input cost and lower realization. However, Elecon’s margins improved by 40 bps y-o-y to 14.7%. BGR energy had high margin BOP orders during the quarter which helped the company report highest ever margin of 14.3%.
Declining profits and elongated working capital cycle- a key concern
PAT for our coverage universe declined 41% y-o-y to ` 2.71bln. BGR’s interest cost rose 118% y-o-y due to increase in debt by ` 5bln to ` 23bln. Jyoti Structures interest cost rose by 50% y-o-y due to increase in LC charges and working capital loan; which lowered its profitability by 11% y-o-y to ` 221mln. Deteriorating working capital cycle due to higher debtor days and decline in orders and customer advances has necessitated borrowings for the companies to fund regular working capital requirements; which in turn has impacted profitability.
Order inflow declines 8% y-o-y in Q2FY12
Order inflow for the coverage universe declined 8% to approximately ` 43.2bln. Barring few BTG orders to BHEL and opening of NTPC super critical bulk tenders for BTG, no big announcements were made in the quarter. Only relief came from PGCIL which declared orders worth ` 35.6bln as compared to ` 18.8bln in Q2FY11.
Outlook
Negative factors affecting capital goods sector are not showing any signs to cool off in near term. Recent moderation in raw material prices and pause in interest rates may support profitability. However, major turnaround for the sector depends on pick up in investments which will drive order inflows and tame down the competition. Although, valuations for most of the companies are at all time low, the sector shall underperform the market due to stagnant order book and declining order inflows for few quarters. We continue to maintain our upward bias towards Elecon and AIA on account of attractive valuation and better growth prospects.
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