STRONG TENDER ACTIVITY TO AID CAPITAL GOODS FIRMS
Continued momentum in public and private sector capital expenditure (capex) is likely to assist year-on-year (YoY) topline and bottom line growth of capital goods companies in the third quarter of the ongoing financial year (Q3FY23).
While sequentially, top line and bottom line numbers appear sluggish, order inflows have remained strong during the October December period, sector experts said.
Analysts tracking the capital goods market said they expected a near 13 per cent net sales growth and 10.3 per cent rise in profit after tax (PAT) on a YoY basis for companies operating in the space. This includes Larsen & Toubro (L&T), Thermax, ABB, Siemens, and KEC International out of a list of 25 top companies, as compiled by BS Research Bureau.
Ouarter-on-quarter ( QoQ), both revenue and PAT growth, is likely to grow by 3.3 per cent and 6.4 per cent for players within this universe, BS Research data shows. Earnings before interest tax depreciation and amortisation ( Ebitda), on the other hand, will likely show a decline of 5.9 per cent on a sequential basis. When compared to the year ago period, Ebitda is likely to show a growth of 13.3 per cent, data shows.
“ Tendering activity in sectors such as water, railways, transmission and distribution have continued to remain strong,” says Vimal Kejriwal, managing director and chief executive officer, KEC International. “At the same time, private capex activity is also picking up,” he says.
In his New Year address to employees on Monday, L&T´s Chief Executive Officer & Managing Director, S N Subrahmanyan, had said the company had the highest ever order backlog, pointing to strong tendering activity by public and private sector entities. “ The government has embarked on a major infrastructure capital spend,” Subrahmanyan said. “ Proactive steps such as introducing PLI schemes and ease of doing business have created a positive atmosphere of growth,” he said. According to analysts Harshit Kapadia and Mudit Kabra of Mumbaibased brokerage Elara Capital, the order inflows for capital goods companies in the December quarter was the highest in eight years for the sector.
“Major capital goods companies have announced cumulative orders of Rs. 41,500 crore in Q3FY23. This is a YoY growth of 240 per cent, the highest quarterly rate in eight years,” Kapadia and Kabra said in their report dated January 4.
Apart from power transmission & distribution, water and railways, sectors such as oil & gas, green energy, data centres, infrastructure, civil works and defence have been key contributors to order inflows for capital goods companies in Q3, say experts.
But there are risks ahead, some analysts said. One is the volatility in crude and currency prices, which could weigh on margins in the quarter under review. The second is project execution delays, which could impact order inflows in the quarters ahead.
On Wednesday, New Yorkbased research and consultancy firm Eurasia group said oil prices would spring back above $100 a barrel in 2023 as tight supply meets growing demand. The firm was putting out its top global risks for 2023 when it made its assessment on crude oil.
Brent crude was trading at $ 79.72 a barrel on Friday amid mounting global recession fears as well as rising Covid19 cases in China and other parts of the world. But Eurasia group says these concerns will abate in the months ahead.
Analysts Amit Anwani and Nilesh Soni of Mumbaibased brokerage Prabhudas Lilladher say execution of legacy projects by capital goods companies will hurt operating margins, with a likely decline of at least 100200 basis points in Q3 versus the yearago period.
