Capital Goods Stocks Outlook for the week – 20 to 22.10.2014

Capital Goods Stocks Outlook for the week – 20 to 22.10.2014

Stocks of capital goods companies are seen in range next week on the back of
sector-specific triggers and overall weak volumes due to the short trading week.
Benchmark share indices are expected to move in a narrow range later next week
as investors avoid taking positions ahead of a long weekend. However, stocks of
major capital goods companies such as Bharat Heavy Electricals and Larsen &
Toubro may find favour among long term investors as the stocks of the company
are currently attractive.

L&T is exposed to several levers across business/geographic segments and has
emerged as the E&C (engineering and construction) partner of choice in India,
which provides a robust foundation to capitalise on the next leg of investment

With the government focused on reviving stalled projects, state-owned power
equipment maker BHEL is also seen benefiting from the optimism of long term
investors in the capital goods sector.

BHEL has significant scope for reduction in material costs, thereby improving gross
margins. Savings in material costs and better operating leverage will help improve
EBITDA margin to 12.9% and 15.7% in FY16e and FY17e, respectively, from 11.6% in FY14.