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Stocks of capital goods companies are seen trading range-bound, tracking the wider market, in the absence of sector-specific triggers and mixed Oct-Dec earnings. Investors are seen preferring stocks of Larsen & Toubro and Crompton Greaves. We believe that L&T could potentially have steady-state domestic inflows of 950-1,000 bln rupees per annum. However, the company may have to contend with near-term disappointments in some sectors. Investors will also prefer L&T due to its strong business model, diverse skill sets, strong execution capabilities and relatively healthy balance sheet. Investors are also bullish on Crompton Greaves as healthy automation order intake is expected to drive the company's future revenues. Improvement in international business is also expected to help valuations of the company.
Crompton Greaves is positive on growth outlook with stronger traction in exports, strong market share in the order inflow from Power Grid Corp and incremental systems business. However, investors expressed caution for Cummins India due to depressed market conditions that continue to impact the company's revenue. Even though the company surprised positively on operating margin at 19.3%, on account of better cost controls, it is expected to revert to 17% going forward. The company will not see any signs of demand picking up in the near-term, as most clients are holding back fresh investments. The management has also expressed caution for domestic market demand until the formation of a new government. Traction in the overseas market is also tepid; as a result, the company expects 2014-15 (Apr-Mar) revenue growth to remain flat.
According to investors, Bharat Heavy Electricals Ltd is also placed in an unfavorable situation due to continued execution issues and is expected to continue to report earnings contraction. Ordering has continued to remain weak in India in FY14 and full year inflows will remain substantially below revenue run rate.
Stocks of capital goods companies are seen trading range-bound, tracking the wider market, in the absence of sector-specific triggers and mixed Oct-Dec earnings. Investors are seen preferring stocks of Larsen & Toubro and Crompton Greaves. We believe that L&T could potentially have steady-state domestic inflows of 950-1,000 bln rupees per annum. However, the company may have to contend with near-term disappointments in some sectors. Investors will also prefer L&T due to its strong business model, diverse skill sets, strong execution capabilities and relatively healthy balance sheet. Investors are also bullish on Crompton Greaves as healthy automation order intake is expected to drive the company's future revenues. Improvement in international business is also expected to help valuations of the company.
Crompton Greaves is positive on growth outlook with stronger traction in exports, strong market share in the order inflow from Power Grid Corp and incremental systems business. However, investors expressed caution for Cummins India due to depressed market conditions that continue to impact the company's revenue. Even though the company surprised positively on operating margin at 19.3%, on account of better cost controls, it is expected to revert to 17% going forward. The company will not see any signs of demand picking up in the near-term, as most clients are holding back fresh investments. The management has also expressed caution for domestic market demand until the formation of a new government. Traction in the overseas market is also tepid; as a result, the company expects 2014-15 (Apr-Mar) revenue growth to remain flat.
According to investors, Bharat Heavy Electricals Ltd is also placed in an unfavorable situation due to continued execution issues and is expected to continue to report earnings contraction. Ordering has continued to remain weak in India in FY14 and full year inflows will remain substantially below revenue run rate.
