Monthly highlights: What’s inside?
• Q1FY13 earnings preview
• Management interactions
• Key highlights from annual reports
• Key highlights/ news for companies/ sector
• Key sector/ macro trends
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Q1FY13 execution to remain weak; OPM pressure to continue
We expect the sector to clock a muted revenue growth of 10.5% YoY on the back of subdued activity level across sub-sectors, especially power equipment. We expect revenue momentum for BHEL, BGR, Thermax to remain weak, while on-the-ground execution for L&T is likely to remain reasonably strong, given revenue visibility and traction in select verticals. We expect margin pressure to continue across power BTG, and T&D, given sustained higher competition level and pricing pressure.
Order intake to remain muted, except for L&T and Thermax
We expect overall ordering momentum to remain muted given weak investment activity and less project closures. However, bunching up of various projects and limited traction in some verticals (captive power, T&D, export market etc) could help L&T and Thermax to see YoY improvement in intake during Q1FY13.
Increased buzz from regulators kindles hope for recovery
With increased government activity in addressing power sector issues, coal availability, import duty on mega-power project imports etc, expectation from the sector has increased. Consequently, there has been uptick in industrial stocks in past few weeks. However, we do not see any concrete steps with regards to solving key issues in the infrastructure space, including attracting private sector participation.
Outlook: Cautiously optimistic; prefer L&T, Crompton and Havells
While we maintain our negative stance on BTG companies, given overcapacity and limited project awards, we continue to like diversified players like L&T, given better visibility on growth over the medium-to-long-term and see the company as proxy to an increased infrastructure spending over next 2-3 years, apart from increased export focus on select verticals. We also continue to like Crompton Greaves, given reasonable prospects of turnaround in overseas plants and bottoming out of domestic business margins. Apart from these, we continue to prefer Havells, given its decent domestic growth prospects and new product launches. Overall, we believe, industrials space over the next 12-15 months would closely follow macro events like key policy changes, interest rates and private sector spending decisions, which should be the biggest trigger for valuations.
Regards,
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