See Capital goods cos Q3 topline to grow 7%: Angel

Angel Broking has come with its December quarterly earning estimates for Capital Goods (CG) sector. According to the research firm, companies in our capital goods (CG) universe are expected to post a moderate cumulative top-line growth of 7.4%.

Angel Broking Q3FY13 result preview for capital goods sector:

We expect companies in our capital goods (CG) universe to post a moderate cumulative top-line growth of 7.4%. However, on the bottom-line front, the picture is mixed, with many companies in our coverage universe posting a flat yoy growth or decline mainly on account of margin pressure and, in some cases, due to higher interest cost.

Capital Goods Index underperformed the Sensex

After outperforming the Sensex in 2QFY2013, the BSE Capital Goods index posted a qoq decline, underperforming the Sensex by 4.7%. The weak industrial capex and problems in the power sector continue to remain an overhang on capital goods stocks. In our CG coverage universe, only Thermax outperformed the sensex, aided by bagging a `503 cr EPC order for captive power plant. Rest of the CG stocks posted a qoq decline due to tepid order intake and continued margin pressure. Though project awarding in the T&D space (primarily by PGCIL) has been a silver lining, other sub sectors, especially power, have disappointed. We believe if the government tackles power sector challenges such as inadequate fuel supplies, delay in land acquisitions and environmental clearance, the investment activity can revive in medium to long term.
 
Overall, the outlook remains challenging

A handful of positives, especially in the T&D space, do very little to warrant a change in our pessimistic view. Against the backdrop of economic slowdown, we believe the overall picture remains gloomy for market leaders (read BHEL, BGR and ABB, among others). We believe it will take a while for the sector to witness dramatic improvements, while the government is initiating its efforts to resolve the key issues in the power sector. Given this, we expect the slowdown to continue for the next couple of quarters. Therefore, companies catering to the power sector will witness a high degree of discomfort unless core concerns soothe.

Valuations

We prefer companies with strong growth visibility and diversified revenue streams. We follow a stock-specific approach, with Crompton Greaves, KEC and Jyoti Structures being our preferred picks. In the BTG space, we continue to maintain our negative stance, owing to concerns of heightened competition and slowing of order inflows.

			(Rs Cr)
Company Name	Net Sales		Net Profit
	3QFY13E	% change	3QFY13E	%change
ABB	2,307	4.9	63	-1
BHEL	11,110	5.3	1,425	-0.5
BGR Energy	900	12	54	-1
Crompton	3,422	13	74	-3.9
Jyoti Structures	617	5	18	29.5
KEC International	1,722	18	33	-26.9
Thermax	1,295	2	87	-9.1

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