Stocks of most
capital goods companies are seen trading with a negative bias next week as
absence of pick up in industrial cycle in India and sluggish pace of execution
is seen affecting Oct-Dec earnings of these companies. Sector bellwether
Larsen & Toubro, which will report its Oct-Dec earnings on Wednesday, is
seen posting a net profit of 11.41 bln rupees, up 2% on year and net sales of
173.53 rupees, up 12% on year. We believe sales growth would continue to be
sluggish due to delay in recovery of investment cycle, profit after tax income
would be lower due to higher interest expense and higher taxes. Another
industry player, Pune-based Thermax Ltd is seen posting Oct-Dec net profit
of 731 mln rupees, down 4% on year despite an 8% on year rise in revenues at
11.14 bln rupees. In Oct-Dec, Bharat Heavy Electricals and Thermax (both
boiler, turbine and generator companies) would likely report a profitability
decline of 28% on year and 13% on year, respectively, due to execution of
low-margin orders. Owing to the continued industrial expenditure slowdown in
domestic market, project based companies are unlikely to see a significant
turnaround in the near term. While product based companies such as Crompton
Greaves are seen reporting favourable numbers. Improved cost structure in
international subsidiaries and better economic environment in key markets
like Europe and US should help company post healthy profitability in
international subsidiaries over next few years.
