The capital goods companies are expected to report a strong orderbook despite sluggish order inflows in the fourth quarter. The sector may witness a revenue growth of 5 percent in Q4FY19, according to Elara Capital.
"On an aggregate basis, CG companies (ex-wind turbine OEM) under our coverage would report revenue growth of 7 percent in Q4FY19. If we include wind turbine OEM, revenue is likely to rise by 5 percent," said the brokerage.
Major upshifts are expected from Thermax, whose revenue is likely to grow 20 percent on a higher opening order book of Rs 6,470 crore, the highest in the past 29 quarters, while T&D firms like Siemens and CG Power could see revenue growth in the range of 9-12 percent.
Revenue of ABB India could decline 30 percent, owing to the sale of the power grid business. Power grid awards remain low at Rs 268 million, down 78 percent, which is the second-lowest quantum of projects awarded in a quarter in the past seven years.
The capital goods companies (excluding L&T) have announced getting orders worth Rs 14,500 crore in Q4FY19, down 55 percent YoY.
Inflows for the quarter were from sectors like power transmission and distribution, railways and metros coaches, renewables, defence, real estate, Smart City and water treatment.
"BHEL received four orders aggregating to Rs 4,800 crore, down 72 percent YoY. KEC International won 15 orders worth Rs 3,500 crore, down 51 percent YoY. Kalpataru Power Transmission announced eight orders worth Rs 3,300 crore, down 31 percent YoY. GE T&D announced an order worth Rs 160 crore. Bharat Electronics received orders of $33 million and L&T has order inflow in range of Rs 38,500-62,100 crore," noted Elara.
Elara recommended stocks such as BEML, CG Power and Industrial, Crompton Greaves Consumer, Inox Wind, KEC International, KEI Industries and Suzlon Energy, ABB India, Cummins for Q4FY19.
According to Anand Rathi Financial Services, the engineering and capital goods sector is likely to report strong earnings growth led by a healthy order book.
"The government investment in capex has slowed due to the election year and hence sluggish order inflows are likely," said the brokerage.
Industrial production (especially fabrication, steel and equipment manufacturing) is likely to have improved. This could have led to healthy growth in abrasives, ceramics and refractories.
For companies such as KEC and Kalpataru, sales and earning growths are expected to be in line with management guidance. Domestic T&D capex is in a declining mode. Powergrid ordering has declined by 50 percent. Hence, the brokerage expects order inflows in domestic T&D to have been under pressure.
Top picks for Anand Rathi for Q4FY19 are AIA Engineering, Grindwell Norton and Voltamp Transformers.
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