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. Telecom Stocks Outlook for the week - 20 to
24.01.2014 Telecom stocks are expected to see a sombre trade next week as
they are expected to continue with their decline as entry of Reliance
Industries Ltd in the upcoming spectrum auction is expected to intensify
bidding. Reliance Industries' telecom arm Reliance Jio Infocomm along with
Bharti Airtel, Vodafone India, Idea Cellular and four others on Wednesday
submitted applications for participating in the upcoming spectrum
auction scheduled to begin Feb 3. Shares of both Bharti Airtel and Idea
Cellular fell by about 6% at the end of the week's trade. We expect 1800 MHz
auctions to be rational, but expect some contest in 900 MHz band (final price
estimated between 1.3x to 1.6x of the reserve price) auctions and such an
outcome could be marginally negative for the incumbent operators. While
Reliance Jio has pan-India 4G spectrum for providing high-speed data services,
it does not hold airwaves in other bands for providing voice services. We
do not think the sector will head for another price war post the spectrum
auction, adding that the current realization rates are at an unsustainably
low level even for market leaders. Shares of incumbent operators will also be
under pressure on anticipation of massive pan-India launch of 4G services at
affordable prices by Reliance Jio in the
coming months. The RIL arm is
expected to launch 4G plans at 300 rupees for 5 GB per month at 2 mbps, which
is lower by 450 rupees from Bharti Airtel's similar 4G plan, which is being
offered in select few cities. Shares of telecom stocks barring Reliance
Communications are expected to trade negatively next week.
