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Capital Goods
�� Dry spell of order inflows continues
H1FY12 witnessed 17% YoY decline in order inflows for companies
under coverage. Macro headwinds have taken a huge toll on the project
awards across segments like Power (specifically generation), Process
industries and other infra related sectors. In Q3FY12, our coverage
companies have secured orders worth |3650 crore (announced on the
exchanges) which stood at |2000 crore in Q2FY12. This is quite
reflective of the huge lumpiness that is been witnessed in order awards
for the sector and thereby putting pressure on the future revenue
visibility. From a segmental perspective, T&D order flows (competitive
intensity high) have been robust as Powergrid ordering activity has
picked up steam. Order awards from Powergrid from April-November
2011 have been to the tune of |8902 crore, implying a jump of 245%
YoY. The first two months of Q3FY12 has seen |5072 crore worth of
orders from the same.
�� Tepid revenue growth a function of weak inflows and execution
Weak order inflows in FY11 and H1FY12 will clearly be reflective of
tapering execution rates, which would adversely impact revenue run
rate. For Q3FY12, we expect our coverage companies to report revenue
growth of 8% YoY. The tepidness in growth is mainly contributed by
companies exposed to power generation equipment and industrials.
Hindustan Dorr and BGR’s revenues will be most affected with decline
expectation of 26% YoY and 19% YoY, respectively. On the brighter
side, transmission EPC companies will post robust revenue growth on
back of reasonable awards from PGCIL and international markets
(Revenues for KEC and Jyoti Structures expected to rise by 28% YoY
and 16% YoY, respectively.)
�� Interest costs and high working capital cycle casts shadow on PAT
EBITDA margins are expected to decline by 130 bps YoY owing to high
raw material costs. But more significantly it’s the 65% YoY rise in
interest costs that will have a dampening impact on the profitability of
the coverage companies. EBITDA is expected to decline 4.4% YoY but
PAT for the coverage companies is expected to decline 19% YoY.
Companies like BGR, HDO and Jyoti Structures are likely face significant
rise in interest costs due to stretched working capital cycle. Thermax, on
other hand, will have least impact of rising rates owing to its debt free
balance sheet and efficient working capital cycle.
Company specific view
Company Remarks
BGR Energy Weak execution trend will be mirrored in Q3FY12 owing to tepid order inflows in
the past quarters. We expect revenues to decline by ~19% YoY. However, higher
share of BoP revenues will cushion the margins to 11.6%, decline of 10 bps
YoY.PAT is expected to decline by 32% YoY, owing to high interest costs. Key
monitarables would be movement in receivables.
Hindustan Dorr The company has won orders worth | 170 crore during Q3FY12 . However, we
expect revenues to decline by 26% YoY to |188 crore. EBITDA margins are
expected at ~10%. Interest costs are expected to balloon up by more than 100%
owing to stretched working capital and higher rates. PAT is expected to decline by
70% YoY.
Thermax Threat to revenue visibility has further increased as company has not declared any
major order win in Q3FY12. Revenues are expected to grow 8% YoY to | 1344
crore. EBITDA margins are expected to decline by 130 bps YoY to 10.8% on back of
higher costs. PAT is expected to decline 6% YoY.
Jyoti Structures On the back of reasonable order backlog, we expect the company to post revenue
growth of ~19% YoY. Higher share of domestic orders will ensure steady margins
of 11%. Interest costs are expected to rise by 50% YoY. Consequently, PAT is
expected to be flattish YoY to | 25 crore.
Sterlite
Technologies
We expect revenues to grow 30% YoY on back of robust execution in conductor
business. EBITDA margins are expected to improve as low margins order in power
segment get depleted but telecom margins are expected to remain muted. High
interest costs will keep PAT under pressure at | 13.3 crore vs. |12 crore in
KEC International We expect consolidated revenues to rise by 28% YoY. The company has won
significant orders in FY11 from domestic as well as international markets,
rendering high visibility. EBITDA margins are expected at 9.2% on the back of high
international fixed price orders. PAT is expected to decline by 16% YoY
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Capital Goods
�� Dry spell of order inflows continues
H1FY12 witnessed 17% YoY decline in order inflows for companies
under coverage. Macro headwinds have taken a huge toll on the project
awards across segments like Power (specifically generation), Process
industries and other infra related sectors. In Q3FY12, our coverage
companies have secured orders worth |3650 crore (announced on the
exchanges) which stood at |2000 crore in Q2FY12. This is quite
reflective of the huge lumpiness that is been witnessed in order awards
for the sector and thereby putting pressure on the future revenue
visibility. From a segmental perspective, T&D order flows (competitive
intensity high) have been robust as Powergrid ordering activity has
picked up steam. Order awards from Powergrid from April-November
2011 have been to the tune of |8902 crore, implying a jump of 245%
YoY. The first two months of Q3FY12 has seen |5072 crore worth of
orders from the same.
�� Tepid revenue growth a function of weak inflows and execution
Weak order inflows in FY11 and H1FY12 will clearly be reflective of
tapering execution rates, which would adversely impact revenue run
rate. For Q3FY12, we expect our coverage companies to report revenue
growth of 8% YoY. The tepidness in growth is mainly contributed by
companies exposed to power generation equipment and industrials.
Hindustan Dorr and BGR’s revenues will be most affected with decline
expectation of 26% YoY and 19% YoY, respectively. On the brighter
side, transmission EPC companies will post robust revenue growth on
back of reasonable awards from PGCIL and international markets
(Revenues for KEC and Jyoti Structures expected to rise by 28% YoY
and 16% YoY, respectively.)
�� Interest costs and high working capital cycle casts shadow on PAT
EBITDA margins are expected to decline by 130 bps YoY owing to high
raw material costs. But more significantly it’s the 65% YoY rise in
interest costs that will have a dampening impact on the profitability of
the coverage companies. EBITDA is expected to decline 4.4% YoY but
PAT for the coverage companies is expected to decline 19% YoY.
Companies like BGR, HDO and Jyoti Structures are likely face significant
rise in interest costs due to stretched working capital cycle. Thermax, on
other hand, will have least impact of rising rates owing to its debt free
balance sheet and efficient working capital cycle.
Company specific view
Company Remarks
BGR Energy Weak execution trend will be mirrored in Q3FY12 owing to tepid order inflows in
the past quarters. We expect revenues to decline by ~19% YoY. However, higher
share of BoP revenues will cushion the margins to 11.6%, decline of 10 bps
YoY.PAT is expected to decline by 32% YoY, owing to high interest costs. Key
monitarables would be movement in receivables.
Hindustan Dorr The company has won orders worth | 170 crore during Q3FY12 . However, we
expect revenues to decline by 26% YoY to |188 crore. EBITDA margins are
expected at ~10%. Interest costs are expected to balloon up by more than 100%
owing to stretched working capital and higher rates. PAT is expected to decline by
70% YoY.
Thermax Threat to revenue visibility has further increased as company has not declared any
major order win in Q3FY12. Revenues are expected to grow 8% YoY to | 1344
crore. EBITDA margins are expected to decline by 130 bps YoY to 10.8% on back of
higher costs. PAT is expected to decline 6% YoY.
Jyoti Structures On the back of reasonable order backlog, we expect the company to post revenue
growth of ~19% YoY. Higher share of domestic orders will ensure steady margins
of 11%. Interest costs are expected to rise by 50% YoY. Consequently, PAT is
expected to be flattish YoY to | 25 crore.
Sterlite
Technologies
We expect revenues to grow 30% YoY on back of robust execution in conductor
business. EBITDA margins are expected to improve as low margins order in power
segment get depleted but telecom margins are expected to remain muted. High
interest costs will keep PAT under pressure at | 13.3 crore vs. |12 crore in
KEC International We expect consolidated revenues to rise by 28% YoY. The company has won
significant orders in FY11 from domestic as well as international markets,
rendering high visibility. EBITDA margins are expected at 9.2% on the back of high
international fixed price orders. PAT is expected to decline by 16% YoY
Source: Company, ICICIdirect.com Research
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