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Stocks of capital goods companies are expected to trade with a negative bias next week as investors expect these companies' Jul-Sep earnings to decline or be flat. Even though order inflow has improved, margins have still not recovered as much as the Street would be comfortable with in order to invest. However, investors are positive on the sector in the long term. The biggest drag for the capital goods sector next week will be Bharat Heavy Electricals, which is expected to register its slowest quarter. For Jul-Sep, the company's is likely to see weak domestic execution and margin pressures due to low capacity utilisation. Investors said profits are set to fall for heavyweights Larsen & Toubro and BHEL, and any bounce back in the bottomline for Crompton Greaves and ABB will be on an extremely depressed base. Apart from L&T, equipment suppliers are expected to post a lacklustre quarter in terms of fresh order booking. In case of L&T, also, order inflow will accelerate growth only by the second half the financial year 2013-14. Woes linked to topline de growth in BHEL continue, also compounded by zero boiler-turbine-generator ordering in the first half of FY14. Among the capital goods players, investors prefer Crompton Greaves as the rupee depreciation could have worked to the advantage of the company's export portfolio. But, the market is cautious of a negative margin surprise on its overseas subsidiaries, which can pull down the company's performance. There is talk that margins have started to look up, but, there are no fundamental shifts in pricing or volume to suggest this. With investments in the power sector still at dormant stage, capital goods companies are struggling to maintain margins that will add to their topline significantly. Government measures to revive investment in the power sector, the primary market for capital goods companies, may also take at least a quarter more to show any positive impact. Lack of timely supply of domestic coal has forced power companies to import coal, increasing their fuel cost, which in turn has led to lower capacity utilisation. A subsequent decrease in capital expenditure by power companies impacted orders from the sector. However, investors indicated that Jul-Sep quarter would be the last-leg of negative earnings for the capital goods companies as they expect margins and orders to improve slightly from the Oct-Dec quarter.
Stocks of capital goods companies are expected to trade with a negative bias next week as investors expect these companies' Jul-Sep earnings to decline or be flat. Even though order inflow has improved, margins have still not recovered as much as the Street would be comfortable with in order to invest. However, investors are positive on the sector in the long term. The biggest drag for the capital goods sector next week will be Bharat Heavy Electricals, which is expected to register its slowest quarter. For Jul-Sep, the company's is likely to see weak domestic execution and margin pressures due to low capacity utilisation. Investors said profits are set to fall for heavyweights Larsen & Toubro and BHEL, and any bounce back in the bottomline for Crompton Greaves and ABB will be on an extremely depressed base. Apart from L&T, equipment suppliers are expected to post a lacklustre quarter in terms of fresh order booking. In case of L&T, also, order inflow will accelerate growth only by the second half the financial year 2013-14. Woes linked to topline de growth in BHEL continue, also compounded by zero boiler-turbine-generator ordering in the first half of FY14. Among the capital goods players, investors prefer Crompton Greaves as the rupee depreciation could have worked to the advantage of the company's export portfolio. But, the market is cautious of a negative margin surprise on its overseas subsidiaries, which can pull down the company's performance. There is talk that margins have started to look up, but, there are no fundamental shifts in pricing or volume to suggest this. With investments in the power sector still at dormant stage, capital goods companies are struggling to maintain margins that will add to their topline significantly. Government measures to revive investment in the power sector, the primary market for capital goods companies, may also take at least a quarter more to show any positive impact. Lack of timely supply of domestic coal has forced power companies to import coal, increasing their fuel cost, which in turn has led to lower capacity utilisation. A subsequent decrease in capital expenditure by power companies impacted orders from the sector. However, investors indicated that Jul-Sep quarter would be the last-leg of negative earnings for the capital goods companies as they expect margins and orders to improve slightly from the Oct-Dec quarter.
