ICICI Securities expects companies in the capital goods space to exhibit a strong recovery in earnings backed by a pickup in order inflows.
After a dull period of financial performance in FY11-16, ICICI Securities expects companies in the capital goods space to exhibit a strong recovery in earnings backed by a pickup in order inflows across key segments, improved execution, and better working capital management.
In the capital goods space, investors can look at ABB and VA Tech Wabag for a target of Rs1720 and Rs795 respectively which could give up 17 percent and 20 percent upside from current levels for the next six months, said the ICICI Securities report.
In terms of order inflows, government backed segments like roads, power T&D, railways, urban infra & transportation and defence have led to a surge in order inflows.
The same is expected to continue in FY18E as well. In such a scenario, we would prefer diversified capital goods players, which are present across the above segments, have strong execution skills and command relatively robust cash flow and leverage profile.
ABB: BUY| buying range Rs1445-1480| Target Rs1720| Stop Loss Rs1320| Upside 17%
ABB is a global leader in industrial technology operating in ~100 countries. The stock witnessed a multi-fold rally in September 2013-February 2015 (Rs446-1526).
Thereafter, it remained in a secondary corrective consolidation phase over 26 months in the broader range of Rs1430 to Rs950.
In the first five months of CY17, the stock has seen a sharp up move from near the lower band of the major consolidation and recently registered a resolute breakout above the upper band of the consolidation range signalling continuation of the uptrend and offers a fresh entry opportunity for medium term investors.
The stock had registered a strong volume led a breakout from its 26 months of consolidation above Rs1430 in May 2017. After the strong breakout rally from Rs1029 to Rs1620 in just five months, the stock entered a sideways consolidation mode and oscillated between the broad range of Rs1620 and Rs1400 in the last nine weeks.
The short-term support for the stock is placed around Rs1350-1400 as it is the 50 percent retracement of the March-May 2017 rally from Rs1180 to Rs1620, which also coincides with the lower band of the recent consolidation.
VA Tech Wabag: BUY| Buying Range 655-675| Target Rs795| Stop Loss Rs592| Upside 20%
VA Tech Wabag is engaged in the water treatment field. The company's principal activities include design, supply installation, construction and operational management of drinking water, waste water treatment, industrial water treatment and desalination plants.
The stock witnessed a major turnaround in price structure towards late March 2017 after posting a resolute breakout above key hurdle of Rs 645.
ICICI Securities believes that the ongoing consolidation over the last four months above the breakout area of Rs 645 presents an attractive buying opportunity from a medium-term perspective.
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