See capital goods sector revenue to grow 10.9% in Q4: Angel

Angel Broking has come with its quarterly earning estimates on capital goods sector for March 2012. The research firm expects, companies in capital goods (CG) universe to post average top-line growth of 10.9%. However, on the bottom-line front, the picture is mixed, with most companies in our coverage universe posting a decline mainly on account of margin pressure and, in some cases, due to higher interest cost.

BTG space continues to reel under pressure: Investments across various sectors have substantially decelerated owing to the deteriorating macro environment. Further, with no signs of respite, the investment cycle will continue to be in a downturn for the next few months, as not many orders are expected to be finalized. In tandem, the BTG market will further witness a dry spell as most of the planned orders have already been awarded and new orders are in the preliminary stages of discussions, which are likely to witness delay in finalizations due to ongoing headwinds (such as day-by-day intensifying fuel crisis, constraints in land acquisition and poor health of SEBs).

T&D space in a better shape; Although concerns loom: While T&D capex is on an uptick, land acquisition and forest clearances (RoW) entail execution risks, which have led to slower-than-expected growth in T&D infrastructure historically. (Of late, few companies in the transmission EPC space have cited execution bottlenecks). 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: In this report, we introduce our FY2014 estimates. We follow a stock-specific approach, with Crompton Greaves, KEC and Jyoti Structures being our top picks in the sector. In the BTG space, we continue to maintain our negative stance, owing to concerns of heightened competition and slowing of order inflows.

Company Name	Net Sales		Net Profit
	4QFY12E Rs (Cr)	% Chg	4QFY12E Rs (Cr)	% Chg
ABB	2,053	14.5	68.9	15.7
BHEL	20,954	14	3,054	9.2
BGR Energy	1,036	-29.1	57.8	-41.2
Crompton Greaves	3,170	9	150.3	-40.2
Jyoti Structures	815.7	13	30	-14.3
KEC International	1,902	22	68.2	-13.2
Thermax	1,789	1	128.5	1.6

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