Kotak Securities has come with its March quarterly earning estimates for capital goods sector. The research firm expects aggregate revenue growth of capital goods sector to be 6.7% YoY in the Mar-ending quarter, driven mainly by L&T, Cummins, and other midcaps and aggregate PAT is expected to post modest growth of 2.7% yoy in Q4 FY13.
Kotak Securities Q4FY13 result preview for capital goods sector:
The stocks of Capital Goods companies have underperformed over the past few weeks with the BSE Cap Goods Index falling 12% in the past two months as against a 6% drop in Sensex. We project muted growth in revenues and profits for the sector in the Q4FY13 earnings season.
Sector Scenario
Capital Goods sector has been a major underperformer in the past one year, largely on account of severe slowdown in investment cycle.
The IIP based Capital Goods Index for the month of January 2013 stood at -1.8%. Fresh projects tendered in February 2013 saw a modest increase of 3% yoy in value terms, indicating that project investment activity remains weak.
Key to investment climate revival lies in enabling conditions in two decision areas -
- clearances (land, environment) and
- viability (availability of financing, lack of uncertainty about fuel (Coal, Gas and Iron Ore) and demand).
Preview Highlights
We expect aggregate revenue growth of 6.7% YoY in the Mar-ending quarter, driven mainly by L&T, Cummins, and other midcaps.
Aggregate EBITDA is expected to grow in line with revenue growth as we project aggregate EBITDA margins to remain stable at 15.8%. Aggregate PAT is expected to post modest growth of 2.7% yoy in Q4 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.
Valuations
Due to the weakening business outlook, valuations of Indian Capital Goods companies have contracted appreciably in the last twelve months. However, the sector is still not out of the woods. Maintain Cautious View. Utilise depressed market conditions to Accumulate L&T, Cummins India, Engineers India and Greaves Cotton at these levels. Avoid BHEL and CGL.
| (Rs million) | ||||||
| Company Name | Revenues | PAT | ||||
| Q4 | Q4 | YoY | Q4 | Q4 | YoY | |
| FY13 | FY12 | (%) | FY13 | FY12 | (%) | |
| Voltamp | 1,688 | 1,946 | -13.3 | 92 | 111 | -17.1 |
| Cummins | 11,661 | 10,404 | 12.1 | 1,510 | 1450 | 4.1 |
| BEL | 23,843 | 22,321 | 6.8 | 3,566 | 3339 | 6.8 |
| Blue Star | 7,860 | 8,044 | -2.3 | 255 | -454 | -156.2 |
| Voltas | 16,289 | 15,735 | 3.5 | 634 | 1013 | -37.4 |
| Thermax | 15,188 | 16,613 | -8.6 | 1,245 | 1298 | -4.1 |
| Hind Dorr | 800 | 3,140 | -74.5 | -77 | 94 | -182.4 |
| L&T | 209,654 | 184,609 | 13.6 | 18,972 | 18654 | 1.7 |
| ABB | 18,152 | 17,730 | 2.4 | 642 | 476 | 34.9 |
| Alstom T&D | 10,500 | 10,128 | 3.7 | 443 | 454 | -2.4 |
| Siemens | 31,200 | 37,973 | -17.8 | 2,612 | 3000 | -12.9 |
| BHEL | 208,316 | 192,595 | 8.2 | 35,140 | 33798 | 4 |
| Greaves Cotton | 5,564 | 4,446 | 25.1 | 447 | 342 | 30.7 |
| TIL | 4,217 | 3,641 | 15.8 | 44 | 27 | 63 |
| Havells | 11,064 | 10,484 | 5.5 | 960 | 916 | 4.8 |
| AIA Engg | 5,319 | 4,546 | 17 | 610 | 534 | 14.2 |
| CGL | 31,544 | 30,774 | 2.5 | 1,548 | 998 | 55.1 |
| Kalpataru Power | 11,355 | 10,616 | 7 | 590 | 568 | 3.9 |
| Bajaj Electricals | 11,831 | 10,586 | 11.8 | 539 | 490 | 10 |
| EIL | 10,949 | 12,253 | -10.6 | 1,408 | 1903 | -26 |
| Elgi | 3,080 | 2,708 | 13.7 | 160 | 211 | -24.2 |
| Diamond Power | 7,821 | 5,301 | 47.5 | 203 | 303 | -33 |
| Everest Kanto | 1,550 | 1,457 | 6.4 | -238 | 9 | na |
| Time Technoplast | 4,763 | 4,281 | 11.3 | 304 | 185 | 64.3 |
| Power | ||||||
| NTPC | 165,320 | 162,636 | 1.7 | 29,454 | 25,931 | 13.6 |
| Tata Power | 90,117 | 64,830 | 39 | 2,684 | 1,863 | 44.1 |
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