Engineering & Capital Goods Inflows falter, Risks remain · - EMKAY

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Engineering & Capital Goods

Inflows falter, Risks remain

·      EMKAY ECG universe order inflows decline 62% yoy and 66% qoq in Q3FY12E and by 27% yoy in 9MFY12E – below expectations

·      Q4FY12E implied order inflows stand at Rs668 bn (or +8% yoy) – equivalent to 46% of FY12E target inflows and at higher end of historic band. Achieving target to be a daunting task

·      Risk to FY12E earnings negligible. But risk to FY13E earnings exists from low order book cover and deferral of orders. Risk to earnings least for L&T, BHEL and McNally Bharat

·      Prefer companies with adequate order book cover, low asking rate for Q4FY12E and low risk to earnings. We like L&T, Thermax, Voltas and Greaves Cotton

Companies	Rating	Price Target	CMP	FY12E EPS	FY13E EPS	PER FY12E	PER FY13E	Historical Average PER
Larsen & Toubro	Accumulate	1,603	1,032	76.0	89.4	13.6	11.5	18.3
BHEL	Hold	376	232	26.4	27.9	8.8	8.3	13.0
Cummins India	Hold	388	332	19.6	22.4	17.0	14.8	17.3
Thermax	Accumulate	495	400	36.3	36.1	11.0	11.1	14.4
Voltas	Accumulate	121	79	6.0	8.8	13.1	8.9	13.7
Greaves Cotton	Buy	103	75	6.9	8.0	10.9	9.4	7.5
Blue Star	Hold	185	164	9.2	15.0	17.8	10.9	10.7
Punj Lloyd	Hold	63	39	1.4	2.5	27.0	15.2	10.2
Elecon Engineering	Hold	61	53	7.3	11.9	7.3	4.5	7.3
McNally Bharat	Accumulate	147	83	16.5	16.9	5.0	4.9	17.7
TRF	Hold	282	211	32.6	28.8	6.5	7.3	9.3