The results of capital goods companies in Q2 FY10 have been largely below street estimates. Although HCC and BHEL seem to have delivered in line with street expectations, others like IVRCL, Punj Lloyd, JP Associates, and L&T have disappointed. CNBC-TV18's Tejal Badal analyses the results.
Here is a verbatim transcript of Tejal Badal’s comments on CNBC-TV18. Also watch the accompanying video.
It was a completely lacklustre quarter for the capital goods and infrastructure companies in Q2 FY10. The main problem seems to be execution, which was definitely below street expectations.
Order inflow, although has picked up, most of these huge value orders that were received by these companies will start yielding into revenues only from the end of FY10, or the beginning of FY11 onwards. Most companies have tried to repay part of their high cost debt. However, interest cost still seems to be a pressure point for most of these companies.
On HCC:
HCCs operational performance was a hit and definitely in line with street expectation. Excluding the extraordinaries for HCC, the bottomline was above street expectations. They have raised about USD 100 million and used the amount to pay off debt on their books.
On IVRCL:
Disappointing set of numbers for the company. Slower execution is what seems to have hurt the company’s numbers. What the street was looking out for in IVRCL was the restructuring news that they had announced of transferring their BoT assets from IVRCL to IVR Prime.
On Jaiprakash Associates:
Again a disappointing set of numbers. Although, Q2 is a seasonally weak quarter for the company, lower construction revenues and poor cement EBIT margins were the pressure points for JP Associates.
On Punj Lloyd:
Poor set of numbers, did not meet street expectations. The cost overrun at the subsidiary level seems to be hurting the company’s numbers now as well.
On L&T:
The execution was below street estimates. Weak FY09 order intake has resulted in poor H1FY10 revenue earnings that the company has shown.
On BHEL:
BHEL has show good performance. The topline has been above street estimates but the lower raw material cost seems to have been a positive trigger for the company although the company has performed well in this particular quarter. They have not increased their FY10 guidance and they have maintained the same.
On Valuations:
If one looks at valuations of the companies, IVRCL is trading at 10-11 times FY11 and 13 times FY10 expected earnings. BHEL is trading at 18 times FY11 versus L&T which is trading at 22 times FY11 expected earnings.