Motilal Oswal has come with its September quarterly earning estimates for Capital Goods sector. According to the research firm, revenue growth in 2QFY13 is expected to moderate to 8% YoY (v/s 17% YoY in 1QFY13), given the depleting order books and constrained environment.
Motilal Oswal Q2FY13 result preview for capital goods sector: We expect revenue growth in 2QFY13 to moderate to 8% YoY (v/s 17% YoY in 1QFY13), given the depleting order books and constrained environment. Ordering activity continues to be sluggish, particularly in the industrial / power generation segment. Current BTB stands at 2.4x, the lowest in 18 quarters and continues to impact reported performance. In 2QFY13, we expect EBITDA margin of 12%, down 40bp YoY, impacted by poor fixed cost absorption. While commodity prices have corrected meaningfully, a large part of the decline is negated by currency movements. Companies with high local manufacturing content (like BHEL, Cummins and Thermax) will be the key beneficiaries. Investment climate at crossroads; environment challenging Net banking credit to the Infrastructure sector is declining since June 2011 and has reached FY09 levels. Project sanctions in 4QFY12 were the lowest since FY06, indicating accentuating slowdown in Industrial and Infrastructure spending. Net projects added per quarter have shown a continuous decline - INR1.5t in 1QFY13 v/s the run rate of INR5t during the period September 2006 to June 2010. Our interactions with several companies suggest that banks are insisting on 70-100% upfront equity for Infrastructure projects, resulting in larger players taking a "bidding holiday". Structural issues like SEB finances (for Power sector), resource availability, land / water / environment, and tight liquidity for project financing are challenges for capex upturn. The government is attempting to address several of these Gauging the environment through non-covered companies Our analysis of 29 noncovered companies also points towards growing challenges, particularly for industrial products, which have relatively shorter business cycles than projects. In 1QFY13, aggregate revenue declined 12% YoY for nine non-covered industrial product companies and 4% YoY for five covered companies (based on segmental analysis). Project revenues are relatively insulated (up 17% YoY in 1QFY13 for non-covered companies), led by healthy execution of existing orders. Also, the impact of slowdown has been building up over the last 3-4 quarters, with TTM sales growth declining from 20% in 2QFY12 to 2% in 1QFY13, aggregated for the 14 companies. Management commentary across companies indicates challenging and uncertain outlook in the medium term.| (Rs in million) | ||||||
| Company | Net Sales | Net Profit | ||||
| Sept.12 | QoQ(%) | YoY(%) | Sept.12 | QoQ(%) | YoY(%) | |
| ABB | 19,190 | 10.1 | 1.9 | 543 | 145.1 | 5.2 |
| BGR Energy | 7,038 | -8.8 | 15.2 | 296 | -42.3 | -11.5 |
| BHEL | 105,257 | 2.2 | 26.4 | 12,329 | -4.1 | 33.9 |
| Crompton Greaves | 29,629 | 9.5 | 5.4 | 1,003 | -14 | 16.8 |
| Cummins India | 12,056 | 10.6 | -4.2 | 1,584 | 23.2 | -12.3 |
| Havells India | 9,796 | 15 | -5.4 | 784 | 5.9 | -10.9 |
| Larsen & Toubro | 132,967 | 18.2 | 11.2 | 8,223 | 3 | -18 |
| Siemens | 35,693 | -1.1 | 25.5 | 1,579 | -11.3 | 333.8 |
| Thermax | 12,020 | -7.8 | 22.2 | 837 | -17.7 | 24.6 |
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