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Expect subdued performance in Q2FY13E: Emkay

Emkay Global Financial Services has come with its September quarterly earning estimates for Engineering & Capital Goods (ECG) sector. According to the research firm, subdued performance is expected in Q2FY13E.

October 13, 2012 / 12:31 PM IST
 
 
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Emkay Global Financial Services has come with its September quarterly earning estimates for Engineering & Capital Goods (ECG) sector. According to the research firm, subdued performance is expected in Q2FY13E.

Emkay Global Financial Services Q2FY13 result preview for engineering & capital goods sector:

Expect subdued performance in Q2FY13E – deceleration in revenue, decline in EBITDA margins, rising interest costs

Muted revenue growth at 6% yoy to Rs321.9 bn – led by both projects and product companies. However, expect healthy revenue growth for L&T at 16% yoy, owing to strong order book execution

Pressure on EBITDA margins to sustain amidst rising input costs and reduced operating leverage. Expect EBITDA margins to fall 70 bps yoy to 12.3%. Consequently, EBITDA to remain flat at Rs39.4 bn (-0.1% yoy)

Led by muted operational performance and higher interest charges, expect APAT to decline by 3% yoy to Rs24.9 bn (first time in last 5 years). Ex-Bhel, though expect muted APAT growth at 4.4% yoy. L&T (+9% yoy), Cummins India (+16%) and Voltas (+165%) while under-performers include Bhel (-10%), Thermax (-17%)

Expect order inflows to decline by 23% yoy to Rs302.9 bn (Ex-bhel decline muted at 1% yoy) - YTD comprising 48% of FY13E target order inflows. Positive catalysts remain missing in the near term (despite policy announcements initiated by the government). Though, few catalysts like reduction in interest rates and input costs, easing of working capital are on anvil; timing is misplaced.

For the next 2-3 quarters, we expect - (1) order inflows to remain muted and (2) muted earnings performance. However, we ascribe low probability for further earnings cut in ensuing quarters (earnings have been cut by +27% since Apr’11) - Though, at this juncture, resumption of investment spend is important Vs earnings performance.

Emkay’s stock selection is purely driven by visibility, cash flows and ROIC of the business models. Our preferred BUYS are L&T, Cummins India and Greaves Cotton. These companies appear to be richly valued (on relative basis); these should be viewed in conjunction to strength of the business model.

 

Company NameNet Sales (Rs mn)Growth (%)APAT (Rs mn)Growth (%)
Q2FY13Q1FY13Q2FY12YoYQoQQ2FY13Q1FY13Q2FY12YoYQoQ
BHEL10273384390105455-3%22%12752920914120-10%38%
Blue Star6245731460473%-15%94205-208-54%1
Cummins India1165412588109037%-7%14941806128616%-17%
Elecon Engineering306423583368-9%30%13064156-17%103%
Greaves Cotton4433411643961%8%316305386-18%4%
Lakshmi Machine Works441343305814-24%2%315310492-36%2%
Larsen & Toubro13018711955411245216%9%8679901979849%-4%
Mcnally Bharat Engg459242794986-8%7%7687107-29%-12%
Punj Lloyd28596277572391720%3%-234-134247-0.7-0.4
Thermax12247983513035-6%25%8306721017-18%23%
TRF2710255326572%6%15-15426-42%1.4
Voltas110961616811216-1%-31%448780169165%-43%

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