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Execution in the capital goods sector surpassed expectations led by
BHEL and Larsen & Toubro (L&T). Margins continued to remain under
pressure due to high input costs and rising competitive intensity.
Higher interest cost translated into strained profitability. Order
inflow declined much sharper than expected due to order slippages
in the BTG space, a big negative surprise. While the general
management commentary is cautiously optimistic given some revival
visible in last 2‐3 months, sustainability of the same remains a key
monitor able. Off‐late there has been some traction from
government regarding coal availability for power, which is
sentimentally positive for equipment companies, given increased
comfort to the existing order books stability.
Large players lead better‐than‐expected execution charge
Execution in the sector surpassed expectation during Q3FY12—up 14.9% YoY against
our expectation of 13.3%. This was primarily led by strong revenue growth reported by
BHEL, L&T and Crompton Greaves. Project deferments and client issues took a toll on
execution of companies in the power T&D space. While we still remain cautious on pick
up in execution, some momentum is likely with improving macroeconomic conditions.
Margins and profitability face the heat
Margins continued to remain under pressure due to high input cost and rising
competitive intensity as margins plunged 230bps YoY to 11.7%. While large players like
BHEL, L&T, Siemens and Crompton Greaves surprised positively on execution front,
they disappointed on the margin front, which led to decline in the sector’s margins.
High interest rates meant that profitability continued to remain under pressure as PAT
margins dived 200bps YoY to 7.3%.
Order inflow on the ebb
Order inflow declined much sharper than expected due to order slippage in the BTG
space, which was the season’s negative surprise. The biggest blow during the quarter
was dealt by BHEL, which saw orders slippage and the total order inflow for the sector
declined 25% YoY to INR289bn.
Outlook for the next 12 months
Industrials and infrastructure ordering is expected to gradually pick up pace going
ahead with softening of interest cost and policy initiatives, especially in power and coal.
While the current traction in roads, T&D and infrastructure space remains healthy,
growth going ahead will be driven by increased pace of large projects in railway (DFCC),
oil & gas etc. We continue to prefer diversified players like Crompton Greaves and L&T.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Execution in the capital goods sector surpassed expectations led by
BHEL and Larsen & Toubro (L&T). Margins continued to remain under
pressure due to high input costs and rising competitive intensity.
Higher interest cost translated into strained profitability. Order
inflow declined much sharper than expected due to order slippages
in the BTG space, a big negative surprise. While the general
management commentary is cautiously optimistic given some revival
visible in last 2‐3 months, sustainability of the same remains a key
monitor able. Off‐late there has been some traction from
government regarding coal availability for power, which is
sentimentally positive for equipment companies, given increased
comfort to the existing order books stability.
Large players lead better‐than‐expected execution charge
Execution in the sector surpassed expectation during Q3FY12—up 14.9% YoY against
our expectation of 13.3%. This was primarily led by strong revenue growth reported by
BHEL, L&T and Crompton Greaves. Project deferments and client issues took a toll on
execution of companies in the power T&D space. While we still remain cautious on pick
up in execution, some momentum is likely with improving macroeconomic conditions.
Margins and profitability face the heat
Margins continued to remain under pressure due to high input cost and rising
competitive intensity as margins plunged 230bps YoY to 11.7%. While large players like
BHEL, L&T, Siemens and Crompton Greaves surprised positively on execution front,
they disappointed on the margin front, which led to decline in the sector’s margins.
High interest rates meant that profitability continued to remain under pressure as PAT
margins dived 200bps YoY to 7.3%.
Order inflow on the ebb
Order inflow declined much sharper than expected due to order slippage in the BTG
space, which was the season’s negative surprise. The biggest blow during the quarter
was dealt by BHEL, which saw orders slippage and the total order inflow for the sector
declined 25% YoY to INR289bn.
Outlook for the next 12 months
Industrials and infrastructure ordering is expected to gradually pick up pace going
ahead with softening of interest cost and policy initiatives, especially in power and coal.
While the current traction in roads, T&D and infrastructure space remains healthy,
growth going ahead will be driven by increased pace of large projects in railway (DFCC),
oil & gas etc. We continue to prefer diversified players like Crompton Greaves and L&T.
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