Kotak Securities has come with its December quarterly earning estimates for capital goods sector. According to the research firm, capital goods companies are expected to post aggregate revenue growth of 10.4% YoY in the Dec-ending quarter, driven mainly by L&T, Cummins, and other midcaps.
Kotak Securities Q3FY13 result preview for capital goods sector:
In the Dec-ending quarter, the BSE Capital Goods index underperformed the Sensex. While the market sentiment has improved in recent weeks, it is yet to reflect in broad economic data points.
Even as the government remains committed to addressing the issue of shortage of coal, there is no short-term solution to the problem. Thus, virtual standstill continues in finalization of power generation projects.
The management commentaries has been cautious, as one would expect given the weak environment. The main points on the outlook are:
Corporates continue to be concerned with slow pace of decision making at government level, delay in land acquisition and emerging resource crunch (Coal and Gas)
In the current environment, managements are focusing on cutting costs and restructuring balance sheets (Voltas and Blue Star).
Corporates are also eyeing new geographies to offset the slowdown in domestic market. L&T is targeting a higher share of orders from the Middle East region. Similarly, Voltas is targeting to deepen its engagement in the Saudi Arabian market.
During the quarter, the government formed the "Cabinet Committee on Investments" to expedite projects of over Rs 10 bn in unit size that are delayed due to multiplicity of approvals/clearances. How effective the CCI would be in reversing the downswing in investments remains to be seen. However, this is a positive move in the right direction.
The Government unveiled the new Urea Investment policy. As per this policy, the government will give 12%-20% post-tax return on fresh capital infused by the manufacturers for setting up of new plants as well as for expansion and revamp of the existing ones. India imports 30% of its urea requirement and it is a major drain on the foreign exchange.
Preview Highlights:
We expect aggregate revenue growth of 10.4% YoY in the Dec-ending quarter, driven mainly by L&T, Cummins, and other midcaps.
Aggregate EBITDA is expected to grow in line with revenue as we project aggregate EBITDA margins to remain stable at 11.7%. Aggregate PAT is expected to post modest growth of 4.1% yoy in Q3 FY13.
In our view, a sustained upturn in the capex cycle is still not forthcoming; a softening in interest rates and commodity prices, coupled with the resolution of fuel and environmental/land issues would trigger the next capex cycle. We retain our cautious view on the Indian capital goods space.
Remain selective in our stock picks with preference for product-oriented companies over project-oriented ones. Prefer L&T, Greaves Cotton, Elgi Equipments, Voltas and Engineers India Ltd.
| (Rs million) | ||||||
| Company Name | Revenues | PAT | ||||
| Q3 | Q3 | YoY | Q3 | Q3 | YoY | |
| FY13 | FY12 | (%) | FY13 | FY12 | (%) | |
| Capital Goods | ||||||
| Voltamp | 1,275 | 1,620 | -21.3 | 69 | 94 | -26.6 |
| Cummins | 11,465 | 9,624 | 19.1 | 1,605 | 1,410 | 13.8 |
| BEL | 14,430 | 14,316 | 0.8 | 2,277 | 1,746 | 30.4 |
| Blue Star | 5,483 | 5,833 | -6 | 91 | -328 | -127.7 |
| Voltas | 12,297 | 11,539 | 6.6 | 444 | 1,429 | -68.9 |
| Thermax | 11,912 | 12,630 | -5.7 | 870 | 955 | -8.9 |
| Hind Dorr | 1,100 | 1,847 | -40.4 | -88 | 30 | -388.2 |
| L&T | 166,303 | 139,986 | 18.8 | 10,810 | 9,916 | 9 |
| ABB | 22,000 | 21,693 | 1.4 | 764 | 638 | 19.7 |
| Alstom T&D | 7,500 | 6,789 | 10.5 | 195 | 159 | 22.6 |
| Siemens | 26,210 | 23,986 | 9.3 | 917 | 708 | 29.5 |
| BHEL | 111,058 | 105,480 | 5.3 | 13,923 | 14,326 | -2.8 |
| Greaves Cotton | 4,494 | 4,392 | 2.3 | 383 | 342 | 12 |
| TIL | 4,095 | 3,226 | 26.9 | 80 | 6 | 1,190.30 |
| Havells | 10,324 | 8,981 | 15 | 908 | 789 | 15.1 |
| AIA Engg | 4,005 | 3,470 | 15.4 | 520 | 502 | 3.6 |
| CGL | 32,779 | 30,279 | 8.3 | 819 | 756 | 8.3 |
| Kalpataru Power | 9,286 | 8,008 | 16 | 464 | 403 | 15.1 |
| Bajaj Electricals | 8,861 | 7,928 | 11.8 | 408 | 328 | 24.4 |
| EIL | 9,837 | 7,925 | 24.1 | 1,672 | 1,513 | 10.5 |
| Elgi | 2,620 | 2,521 | 3.9 | 191 | 173 | 10.4 |
| Diamond Power | 5,361 | 5,391 | -0.6 | 182 | 308 | -40.9 |
| Everest Kanto | 1,500 | 1,432 | 4.7 | -85 | -222 | -61.8 |
| Time Technoplast | 4,600 | 3,978 | 15.6 | 284 | 237 | 19.8 |
| Power | ||||||
| Tata Power | 86,770 | 62,810 | 38.1 | 2,159 | 4,600 | -53.1 |
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