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Stocks of most capital goods and engineering companies are seen trading down next week as investors may refrain from investing in the sector owing to sluggish order booking, and increased competition. While the government is taking policy initiatives to push stalled projects, not much has materialised in terms of order booking.
Bigger companies like sector bellwether Larsen & Toubro are focusing on international markets to mitigate the shrinking domestic order booking. A limited number of domestic orders are being floated, and the competition for these is high, which is affecting margins of the orders. However, those capital goods companies could see some traction in order inflow in the second half of 2013-14 (Apr-Mar).
While we take note of a turnaround at the Hungary plant and expect losses to dip over the following one or two quarters, we believe CRG's (Crompton Greaves') ability to report high single digit EBIT (earnings before interest, tax) margin will remain capped given sustained competition in delta markets (Middle East, Europe, US).
We retain our positive stance for Cummins India over medium to long term, given its favourable market and product positioning in the DG set industry. With upcoming emission norm change and volume ramp up from new plant (at Phaltan mega-site), we believe the company gains a strong edge over competition, both in domestic and export market.
