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Jun 22, 2012, 05.07 PM IST
In this month’s update on the Engineering & Capital Goods (ECG) sector, we have analyzed current trends and assessed the health of the sector from multiple data points like tendering activity, order finalizations, execution and delays if any, production data and cost index.
Emkay Global Financial Services has come out with its report on Engineering & Capital Goods (ECG) sector.
In this month's update on the Engineering & Capital Goods (ECG) sector, we have analyzed current trends and assessed the health of the sector from multiple data points like tendering activity, order finalizations, execution and delays if any, production data and cost index.
Tendering momentum continues in May’12; Pick-up in central government activity
May'12 witnessed continued momentum in tendering activity - number of tenders grew 3% YoY to 3,291 (down 7% MoM). In value terms, tenders grew by 32% YoY and 17% MoM to Rs277.9 bn. After 8 months of subdued activity, tenders by Central government grew by 54% YoY to Rs124.3 bn (+19% MoM) in value terms and by 30% MoM to 783 tenders (-13% YoY). Road sector remained the highest contributor with 1,108 tenders (34%) followed by community services (719, 22%), community services (719, 22%), irrigation (315, 10%), railways (315, 10%), water supply (204, 6%), power distribution (147, 4%) and power equipment (104, 3%).
Order finalizations declined 19% MoM in May’12; Roadways witness highest decline
After a strong Apr’12, order announcements declined 19% MoM to Rs112.2 bn - largely attributed to sharp decline in orders from road sector, thereby negating impact of strong orders from the power sector (coming from finalization of NTPC-bulk tenders). Orders from road sector declined by 92% MoM to Rs4.7 bn while orders from power equipment increased 47% MoM to Rs77.6 bn (69% of total orders) and that from power distribution increased 82% MoM to Rs8.3 bn. Real estate and infrastructure sectors witnessed muted activity while process continued to disappoint remains a cause of concern.
Production of capital goods- Mixed bag
In Mar’12, production increased sharply on MoM basis. Typically, March month witnesses the highest annual production at about 2-3X average annual monthly production. However on YoY basis, production declined or remained muted in case of high value capital goods equipment, gears, valves, transformers, transmission lines and cranes due to a high base in Mar’11 in line with expectations. Production of bearings & loaders remained stable on annual basis. Deceleration continued in production of engines and earth moving machinery. We believe that low base of Apr’11 could positively impact Apr’12 production figures, in quiet a few cases.
Emkay cost index continues to inch up
Emkay commodity price index grew 1.4% MoM and 9.9% YoY to 211.2. Crude continued to be the main contributor to rise in price index. Crude rose by 28.2% YoY followed by copper (+17.4% YoY). On MoM basis, copper increased the most by 8.4%. Prices of cement dropped 2.5% MoM while aluminum and rubber fell by 20.5% and 13.0% on YoY basis. Ex-cement, Emkay commodity price index grew by 8.1% YoY and 3.1% on MoM basis to 225.6.
In Mar’12 quarter, ECG sector net profit grew by 8% YoY
Performance for quarter ending Mar’12 was impacted by (1) declining order backlog cover (2) subdued growth by product companies (3) 360 bps YoY drop in gross margins and (4) sharp rise in interest costs. ECG sector revenue growth was lowest in past 5 quarters at 11% YoY to Rs686 bn. Led by low revenue growth and 360 bps YoY fall in gross margins, EBITDA margins fell 70 bps YoY to 15.7%. Consequently EBITDA growth was subdued at 6% YoY to Rs109 bn. High other income partially offset 23% YoY rise in interest costs and drop in EBITDA margins. Hence, growth in adjusted net profit was higher at 8% YoY to Rs73 bn. Further, ECG sector also witnessed deterioration in net working capital increased by 190 bps YoY to 11.1% of sales as on Mar’12.
To read the full report click here
Tags: Larsen & Toubro, Cummins India, Greaves Cotton, Engineering & Capital Goods, Emkay Global Financial Services
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