Angel Broking has come with its September 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 13%.
Angel Broking Q2FY13 result preview for capital goods sector: We expect companies in our capital goods (CG) universe to post a moderate cumulative top-line growth of 13%. 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 costs. Capital Goods Index - has outperformed sensex After a flat performance of capital goods stocks in 1QFY2013, the sector has bounced back for the quarter, outperforming the Sensex by 1.7%. Though concerns of weak industrial capex and problems in the power sector remain, the renewed push for reforms by the government, aided the recovery of capital goods stocks. While KEC International, Jyoti Structures and Thermax posted impressive gains, ABB and BGR Energy declined. BHEL and Crompton Greaves remained subdued, underperforming the Sensex. 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 the investment activity will improve in the medium term if the government continues reforms and tackles power sector challenges such as inadequate coal supplies, land acquisition issues etc. Outlook 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 International and Jyoti Structures being our preferred picks in our coverage universe. In the BTG space, we continue to maintain our negative stance, owing to concerns of heightened competition and slowing of order inflows.| (Rs in Cr.) | ||||
| Company | Net Sales | Net Profit | ||
| 2QFY13E | % chg | 2QFY13E | % chg | |
| ABB | 2015 | 15.6 | 64 | 187.5 |
| BHEL | 11,967 | 16.2 | 1,487 | 5.3 |
| BGR Energy | 849 | 10 | 51 | -1.4 |
| Crompton Greaves | 2,976 | 10 | 110 | -5.9 |
| Jyoti Structures | 651 | 3 | 18 | -18.8 |
| KEC International | 16 | 7.6 | 30.9 | 1.2 |
| Thermax | 1,238 | -5 | 83 | -18.7 |
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