Modest recovery in order inflows for Capital Goods companies

Mumbai : The capital goods companies have seen slight revival in order inflow during the last quarter led by public sector capex and overseas projects, even as private sector continues to shy away from investments.

 Going by the quarterly numbers declared by capital good companies so far, the aggregate order intake for firms grew by 16% y-o-y on account of orders from railways, roads, renewable and transmission & distribution segments. The growth in order intake was also aided by favourable base effect (capital goods companies reported one of their worst performance in the quarter ending June 2015).

Larsen and Toubro, the largest player in the capital goods segment reported 14% y-o-y rise in order inflow thanks to healthy order inflows from overseas markets even as orders from domestic segment were down 9%. The order inflow from domestic segment was driven by small sized orders while the large orders continued to remain weak.

 ABB Limited — that has witnessed two consecutive quarters of decline in order inflows — reported modest 8% growth in new orders largely from smaller base orders from transportation, renewable and transmission segments. The larger volume of shorter-cycle orders in last few quarters has also aided the company to convert the orders into revenues faster even as larger orders take time for finalisation and execution. ABB reported 9% growth in total revenues but its revenues from process automation were down 3.3% due to sluggish domestic industrial activity.

The revenue growth for most of the capital goods companies have been in line with estimates growing by 9-10% on an average. However there have been few disappointments like Bharat Electronics reporting decline in revenues by 21% against the analyst consensus estimates of 10%.

 L&T’s management that has guided for 15% growth in order inflows during the fiscal 2017 believes that both Central and State government led push to capital expenditure would be vital to accelerate the growth engine.Management guided that incremental order inflow growth would be supported by pick up in ordering activity in the power, railways, hydrocarbon and defence segment.

 KEC International’s management too highlighted that it is also seeing good traction in railways and solar segments. It expects transmission and distribution orders from state electricity boards to improve in the coming months.

 Voltas that reported strong growth in its MEP (mechanical, electrical and public health) segment order inflows to Rs 920 crore led by two large order wins in Qatar, said that it is witnessing uptick in domestic enquiries from water infrastructure and rural electrification segments.

 However the management commentary from capital good companies remained cautious on the domestic private sector capex in core sectors like steel, cement, refining and power, on back of excess capacities, low utilisation levels and high debt burden.

 The stock prices of capital goods companies have seen run-up lately with S&P BSE Capital Goods index gaining 15% rise in last three months and is trading at slight premium to long term average on one year forward price to earnings metric. However the sector index is still down by 18% from its yearly highs given the fact that industrial demand recovery is still some time away.

(For all the latest News, Mumbai, Entertainment, Cricket, Business and Featured News updates, visit Free Press Journal. Also, follow us on Twitter and Instagram and do like our Facebook page for continuous updates on the go)

Free Press Journal