Capital Good Stocks Outlook for the week – 06 to 10.2016 (In range with positive bias next week)

Capital Good Stocks Outlook for the week – 06 to 10.2016

(In range with positive bias next week)

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The shares of capital goods companies are seen trading with a positive bias next week as recent correction in stocks post a mixed earnings season coupled with positive outlook from most companies may attract investors.

While companies continued to face execution challenges, stretch working capital cycles and weak order inflows during the last quarter of 2015-16 (Apr-Mar), management comments of most major capital goods companies reiterated their positive outlook for 2016-17 (Apr-Mar).

For FY17, (Cummins India) management guided for revenue growth of 8-12% in the domestic business and flat with a downward bias for exports. Management sounded

positive on industrials and power generation.

Capital Goods Stock Outlook for the week – 08 to 11.03.2016 Seen trading in a narrow range with a positive bias

Capital Goods Stock Outlook for the week – 08 to 11.03.2016

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Stockss of capital goods companies are seen trading in a narrow range with a positive

bias, but gains are likely to be limited owing to the lack of any sector-specific

triggers.

Focus, however, will be on product companies as sluggish capital expenditure cycle

and weak order visibility is seen impacting performance of capital goods companies

operating in the projects business like Larsen & Toubro, Bharat Heavy Electricals,

and Thermax.

Shares of Siemens are likely to gain as the company's management, post market hours

today, announced it will consider special dividend after the sale of its healthcare

devices division.

The company's board is considering the distribution of 50% of the sale consideration

as special dividend. At the meeting of the board of directors, the company also

approved the sale of Siemens Healthcare Pvt Ltd to a subsidiary of parent Siemens

AG.

Capital Goods Stocks Outlook for the week – 01 to 05.02.2016 Seen in range with negative bias

Capital Goods Stocks Outlook for the week – 01 to 05.02.2016

Seen in range with negative bias

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Stocks of capital goods stocks are seen trading in range with a negative bias in the

upcoming week, after sector bellwether Larsen & Toubro cut its order inflow

guidance. The company expects its order inflows for 2015-16 (Apr-Mar) to be flat on

year. L&T has already cut its order inflow guidance for 2015-16 to 5-7% in October

from 15% at the beginning of the financial year. The company has guided for a 10-

15% revenue growth in 2015-16. L&T reported Oct-Dec consolidated net profit of

10.35 bln rupees, up 19.42% on year, and higher than analysts' estimates. Net sales for

the quarter ended December were 253.87 bln rupees, up 7.6% on year.

The coming week will also see more capital goods companies reporting earnings--

Crompton Greaves and Cummins posting results on Tuesday, while ABB India to

detail its earnings on Thursday. The Avantha Group-owned Crompton Greaves is

widely expected to report weak quarterly earnings, as its mainstay power equipment

business is likely to continue to be under pressure.

Performance of the overseas business is likely to be volatile, largely given the stated

intent to hive off the businesses; this could impact productivity in the interim,

impacting reported financials. Tulsi Tanti-owned wind turbine maker Suzlon Energy

detailed its Oct-Dec earnings yesterday, reporting a net loss of 1.13 bln rupees,

against analysts' estimates. The company's income from operations for the December

quarter was 18.89 bln rupees, down 61.87% on year.

Capital Goods Stocks Outlook for the week – 25 to 29.01.2016 Seen in a range; Oct-Dec earnings eyed

Capital Goods Stocks Outlook for the week – 25 to 29.01.2016

Seen in a range; Oct-Dec earnings eyed

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Stocks of most capital goods companies are seen trading in a range with a negative

bias, as earnings and outlook of most companies are expected to be bleak. Major

capital goods companies such as Larsen & Toubro, Siemens, Thermax and Bharat

Electronics will detail Oct-Dec earnings next week. But apart from the actual

performance of these companies in Oct-Dec, market participants will eye the

management commentary on order inflows.

Order awards in December 2015 stood at INR163b (163 bln rupees)(-)52% MoM

(month-on-month) v/s average levels of INR187b (187 bln rupees) in the last 12

months and were impacted by a drop in finalization of large size projects, especially

in Railways and Power Generation.

Most of these companies are expected to report subdued order inflows for the quarter

under review. The order pipeline is also expected to be depressed. If order books of

capital goods companies fail to expand, revenues eventually will start showing

weakness. State-owned defence communications and electronic component maker

Bharat Electronics is one of the few companies expected to report improvement in

financial results on a year-on-year basis. The company is seen reporting Oct-Dec net

profit of 2.86 bln rupees, up 5% on year, and net sales of 17.92 bln rupees, up 13% on

year.

Thermax, which will detail its results on Jan 29, is expected to report Oct-Dec net

profit of 741 bln rupees, down 3% on year, and net sales of 11.0 bln rupees down 3%

on year as well. L&T on the other hand is expecting to report a muted net profit

growth of 5% and topline increase of 13% on year. Slowdown in power sector and

sluggish industrial capex are major reasons for earnings pressure in BHEL, Siemens

India, L&T, Thermax and ABB. Analyst Expecting that L&T order inflows in Oct-

Dec to fall 13% on year and the management cutting order booking aim further 5-7%.

L&T has already cut its order inflow aim for 2015-16 (Apr-Mar) from 15% to 5.7% in

October.

Capital Goods Stocks Outlook for the week – 21 to 24.12.2015 (Rangebound trade with positive volatility)

Capital Goods Stocks Outlook for the week – 21 to 24.12.2015

(Rangebound trade with positive volatility)

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Stocks of capital goods companies is seen range bound next week with a

slight positive bias. Sector bellwether Larsen & Toubro is also seen

gaining marginally on the back of news that the company has secured a

10-bln-rupee defence order. Stocks of Bharat Heavy Electricals are also

seen gaining.

Long-term investors are likely to take the benefit of the steep decline

in L&T stock prices and enter the stock at the current levels. Separately,

towards the fag end of the current week, the company announced it has

been awarded a 17-bln-rupee order for construction of roads for the

Dholera smart city and a 10-bln-rupee contract for supply of weapon

system, fire control systems, and missile casing for Pinaka rocket

launcher. These developments are being viewed positively for the

company, which has been seeing a decline in its order inflows for the past

two quarters.

Developments in the Rajya Sabha will also be keenly eyed by market

participants next week. The winter session, which has seen a stalemate so

for, ends on Wednesday--with the fate of major bills such as the one on

Good and Service Tax still uncertain.

Stocks of product companies such as Cummins India, KEC International

and Kalpataru Power Transmission are also seen accumulating further

gains next week.

Investors continue to prefer Kalpataru Power and KEC International as

increase in government spending in transmission sector is seen benefiting

these companies.

Capital Good Stocks Outlook for the week – 12 to 16.10.2015 (Consolidated trading with negative bias)

Capital Good Stocks Outlook for the week – 12 to 16.10.2015

(Consolidated trading with negative bias)

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Stocks of most capital goods companies are seen shedding some gains that they have accumulated over the last week on account of profit booking in the absence of any key sector-related or company-specific development.

However, stocks of sector major L&T are seen remaining firm as the high  exposure to construction and infrastructure segment is likely to shield the company from the sluggish order inflows and execution in the heavy industries segment.

Medium term investors may look at investing in shares of KEC International, Kalpataru Power Transmission, Alstom India and Cummins as short cycle capital goods makers are likely to see better times sooner than boiler-turbine-generator makers such as Bharat Heavy Electricals and Thermax.

Capital Good Stocks Outlook for the week – 13 to 17.10.2014

Capital Good Stocks Outlook for the week – 13 to 17.10.2014

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Shares of most capital goods companies are seen trading with a negative bias next week, as

short-term investors will be cautious ahead of Jul-Sep corporate earnings that are unlikely to

provide any major positive surprises. Operational performance for 2QFY15 (Jul-Sep) is expected

to remain muted as the pace of project execution has failed to show any sign of a pickup.

Macro scenario fails to provide major growth triggers from a near term perspective -- turnaround

continues to be in the initial stages, with an improvement being limited at the sentiment level and

yet to reach tendering order finalisation level.

Shares of electrical equipment maker Crompton Greaves are seen down on weak Jul-Sep

earnings. While the company's management has guided for improvement in European business

performance this financial year, the same was not visible in the Crompton Greaves' Apr-Jun performance.

Capital Goods Stocks Outlook for the week - 07.10.2013 - 11.10.2013

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Stocks of capital goods companies are expected to trade with a positive bias next week riding on improved order inflow and better liquidity. Investors expect overall momentum in orders for capital goods companies to further improve by the end of the year. Decision of Cabinet Committee on Investment to revive stalled projects is a positive development for the sector as a whole. The directive to Coal India to commit to over 170 fuel supply agreements will also benefit the companies catering to the power sector. In September, the Cabinet Committee on Investment made local sourcing of equipment mandatory for companies setting up ultra mega power projects in the country, leading to more demand and order inflow for the capital goods sector. With the government going ahead with auction of two more ultra mega power projects soon, the capital expenditure cycle is also expected to revive. Investment by power companies, primary market for capital goods sector, is also set to revive, after the government directed Coal India Ltd to sign 173 fuel supply agreements for a capacity of 78,000 MW. 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 the power companies impacted orders from the sector. Investors prefer companies operating with diversified revenue streams across different geographies like Crompton Greaves, Larsen and Toubro, and KEC International. Bharat Heavy Electricals Ltd is also expected to trade higher as the company is expected to benefit the most from the government measures to boost investment in the power sector. The BHEL stock price has run up close to 40% from its lows in August on the back of positive news-flow including domestic sourcing of equipment for ultra mega power projects. The sector bellwether L&T will move up as analysts estimate a near 40% growth in order book for the company in Jul-Sep. L&T has already crossed 50% of inflow target required to meet 20% FY14 growth guidance. We estimate a modest rebound from an extremely weak June quarter. The inflow momentum from water & effluent treatment and transmission and distribution has also improved.

Capital Goods Stocks Outlook for the week - 02.9.2013 - 06.09.2013

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Stocks of capital goods companies are likely to shed this week's gains in the coming week due to continued weakness in operating margin, project delays, sluggish investment, and slow pace of order booking. Shares of capital goods companies rose this week on short covering. Stocks of companies such as Bharat Heavy Electricals Ltd, which were up this week on expectations domestic sourcing of power equipments may be made mandatory for power utility companies, are also seen down next week. The market absorbed the positive sentiment on the announcement (bidding norms) last week. Coming week, stocks will correct because the benefit of it, if any, will come only by the year-end. In the near term, there is no positive movement An Empowered Group of Ministers on Aug 23 cleared bidding norms for ultra mega power projects, paving the way for auctioning of new power projects, which in turn will help boost demand for capital goods companies. As per the new norms,companies developing these power projects may have to mandatorily source power equipments domestically, facilitating increased demand for capital goods players. Shares of capital goods companies are also seen down next week due to the weak rupee, which erodes profits of such companies who, on an average, import around 60% of their raw material needs. Benefits of recent decline in commodity prices will get eroded by currency fluctuation. It is a steep fall, so the impact is also likely to be higher However, Larsen & Toubro is the preferred stock in the pack, as impact of the rupee's fall against the dollar is seen mitigated due to the company's overseas operations. Diversifying order inflows towards international geography and real estate helped though (L&T's) margin trajectory is still weak Even though companies such as Crompton Greaves and L&T have indicated signs of revival in the industry and improved order inflow, investors do not see any significant improvement in the profitability of the sector players. Projects are being delayed still, as the power to invest has still not revived. There is delay in booking revenues, while operating expenditure continues, resulting in margin pressure and deterioration of working

Capital Goods Stocks Outlook for the week - 12.08.2013 - 16.08.2013

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Stocks of most capital goods companies are likely to continue trading with a negative bias in the coming sessions due to weak quarterly earnings from industry players and gloomy outlook on projects and margins. Larsen & Toubro, the leading stock in the segment, is also down due to weak margins. Also, the Reserve Bank of India's latest steps to tighten liquidity will put downward pressure on capital goods companies' stocks. Yesterday, the RBI said it will auction 220 bln rupees of cash management bills every Monday to further contain volatility in the foreign exchange market. Projects are delayed as clients are going slow on capex (capital expenditure) due to liquidity pressure, payments are deferred, which has led to delay in booking revenues, even as expenditure continues, resulting in margin pressure and deterioration of working capital. 

Also, new project announcements have further dried up, pointing towards subdued industrial and capital expenditure activity in the coming quarters. The stock valuations are now at realistic levels, but investment cycle is still weak. Even though the stocks might be very near bottoming out, in the near term the outlook is negative or cautious. The preferred stock for next is Thermax due to favourable placement of its products and built up capacity. Investors are also bullish on ABB, as the company is likely to report a moderate growth in revenues as well as profit for Apr-Jun. Despite investors being bullish in the short term, the stock may see some decline on weak order intake for Apr-Jun Siemens, which posted weak results last week, is seen trading down in the coming sessions on project delays and margin pressure. 

Capital Goods Stocks Outlook for the week - 29.07.2013 - 02.08.2013

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Most stocks of capital goods companies are seen trading down, as weak earnings in Apr-Jun has subdued investor sentiment. After sector bellwether Larsen & Toubro, energy and environment engineering solutions provider Thermax too posted disappointing Apr-Jun numbers. While recent order win leads to a revision of our order intake and revenue estimates, the same is already factored in current valuations. This coupled with weak demand in captive power (especially in large boilers) and power equipment markets limit growth prospects.

Generator sets and engines maker Cummins India will on Thursday report its earnings for the quarter ended June, while KEC International, Siemens India and Suzlon Energy will detail their results on Aug 2. Cummins India's Apr-Jun net profit is seen down 5% on year at 1.71 bln rupees and net sales are seen at 12.55 bln rupees, up 1% on year.    

Similarly, the Indian subsidiary of German capital goods and engineering company, Siemens AG, is also likely to feel the heat of weak sales and depreciation of the rupee. Siemens sources more than 40% of its raw materials from overseas and hence could be hit by the fall in the value of the Indian currency.

Power and transmission line infrastructure provider, KEC International's profit is expected to slide in Apr by 40% year on year to 200 mln rupees. Low visibility of orders and execution of low margin orders is likely to have a negative impact on the company's performance in the quarter. Struggling wind farm equipment maker Suzlon Energy, which posted its biggest ever loss in Jan-Mar, is unlikely to see any significant improvement in Apr-Jun.

Capital Goods Stocks Outlook for the week - 10.06.2013 to 14.06.2013

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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.

Capital Goods Stocks Outlook for the week - 03.06.2013 to 07.06.2013

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Trading in stocks of capital goods and engineering companies is seen mixed next week with long-term investors picking up stocks of Larsen & Toubro and Bharat Heavy Electricals, which are currently trading at attractive levels. Some mutual funds may be rebalancing their portfolios and they are likely to pick up stocks of companies like L&T and BHEL with a long-term view. These companies have strong fundamentals but are currently trading at a discount. Stocks of Bharat Heavy Electricals could see some marginal gains. A significant uptick in stocks of capital goods companies is unlikely in the near-term as there is no significant improvement in order inflows. In addition to the sluggish quantum of order inflow, capital goods companies are facing stiff competition from Chinese players, which is further squeezing operating margin of these companies.

Stocks of electrical equipment maker Crompton Greaves are seen down. Crompton Greaves' operating margin is likely to see some slight improvement in 2013-14 (Apr-Mar) on the back of the completion of restructuring of its Belgian operations. Stocks of BGR Energy Systems are also likely to trade with a negative bias on Monday as the company has fixed a floor price of 163 rupees for its offer for sale, a discount to yesterday's closing price of 192.95 rupees. Promoter Sasikala Raghupathy of BGR Energy Systems will sell 6.13% stake or 4.42 mln stocks of the company on Monday, in order comply with SEBI's minimum public shareholding norm. 

Capital Goods Stocks Outlook for the week - 20.05.2013 to 24.05.2013

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Stocks of capital goods and engineering companies are seen up in the first half of next week on positive sentiment, but likely weak Jan-Mar earnings from Crompton Greaves and profit booking could erase the gains. Stocks of most capital goods companies ended up yesterday on talks of likely improvement in order inflow from state-owned companies. Some also reacted positively to talks that their promoters would either announce a share buyback or delisting plans. Thermax and Larsen & Toubro are among the most preferred stocks by investors. Thermax is expected to report strong earnings on improved order inflow. Thermax has created capacities at a time when the industry has been lagging. Thermax's positive earnings will benefit the sector.
 
Investors expect L&T to meet its order inflow guidance. L&T and Thermax will detail Jan-Mar results on Wednesday. A strong support is seen for L&T at 1,580 rupees and resistance is seen at 1,660 rupees. Support for Thermax is at 602 rupees, while resistance is seen at 629 rupees. Investments have started to look up a bit. The sector as a whole may begin to show positivity in next few quarters. The key data points to watch out would be the order inflows going forward and the balance sheet position of these companies, particularly on the working capital side.

Capital Goods Stocks Outlook for the week - 13.05.2013 to 17.05.2013

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Stocks of most capital goods and engineering stocks, except Larsen & Toubro, are seen trading with a negative bias this week on account of weak Jan-Mar earnings. Stocks of sector bellwether Larsen & Toubro could see marginal gains, as investors remain positive on the company meeting its order inflow guidance for 2012-13 (Apr-Mar). On the other hand, investors have a negative view on generator sets and engine maker Cummins India. On Friday, after market close, the company posted 30.4% rise in Jan-Mar net profit at 1.88 bln rupees. However, the growth was largely aided by 241.5% jump in other income to 823.7 mln rupees. The company's adjusted net profit for Jan-Mar fell 11.66% on year to 1.06 bln rupees and its margin shrunk to 16.79% from 18.71% on year. We remain largely negative on capital goods stocks owing to the 50-60% over supply in the industry and falling order book. Diversified capital goods companies will do better. L&T and Cummins India, companies with deep pockets, will successfully swim against the negative tide, but the general sentiment on the industry will be negative. Electrical equipment maker Crompton Greaves is likely to trade with a negative bias in the near term, as the company has not seen significant improvement in its order book. Investors are eagerly looking forward to some clarity on the additional restructuring costs at the company's plant in Belgium.

Capital Goods Stocks Outlook for the week - 06.05.2013 to 10.05.2013

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Stocks of most capital goods and engineering companies are seen range-bound next week due to absence of any major triggers. Stocks of sector bellwether Larsen & Toubro could see marginal gains, as investors remain confident of the company meeting its order inflow guidance for 2012-13 (Apr-Mar). Compared with others in the sector, L&T has good order visibility at present. The company is getting international orders, and those mitigate the impact of the sluggish domestic order inflow.

Transmission and distribution equipment maker KEC International, which will detail its Jan-March earnings on Wednesday, is likely to take a hit in terms of operating margin.  The stock of orders from new business areas such as cables, telecom and water treatment is rising, and this is affecting the RPG group company's overall margin. Stocks of diesel-powered generator maker Cummins India are unlikely to see any major gains, as investors expect its Jan-Mar earnings to be mellowed.

Capital Goods Stocks Outlook for the week : 29.04.2013 to 03.05.2013

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Stocks of capital goods and engineering companies are likely to trade in a thin band with a negative bias, as investors see a weak earning season for the sector, Larsen & Toubro being the only exception. Investors have shown concern over muted order inflows in the capital goods sector in Jan-Mar, which is traditionally the strongest quarter for the industry, given that most government orders are finalised during this period.

Private sector capital expenditure is also unlikely to improve in the short term given the macroeconomic headwinds.However, investors are positive on Larsen & Toubro, as it is expected to meet the guidance for order inflows in the quarter. Some investors are also positive on Crompton Greaves, as they expect the stock to improve in the next few quarters.

Investors are likely to pick diesel-powered generator maker, Cummins India, as the company is expected to report robust earnings for Jan-Mar. Capital goods and engineering company Siemens disappointed by posting below-than-expected Jan-Mar result. Its Jan-Mar net profit fell 90% on year owing to delay in execution that also led to revision of revenue and cost for some projects.

Environment remains difficult in the capital goods segment due to lack of capex in key industries and fresh power capacity addition. New project announcements continue to be sluggish and macroeconomic indicators do not point towards a revival in near future.

Capital Goods Stocks Outlook for the week: 22 - 26.04.2013

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Stocks of capital goods and engineering companies may rise marginally next week on account of short-covering ahead of the expiry of April futures contracts on Apr 25. Stocks of capital goods and engineering companies are likely to trade with a negative bias for next few months, with the exception of L&T and Cummins India, due to tepid demand environment. Most of these companies are also seen posting weak earnings owing to the weak order inflow in Jan-Mar and sluggish execution. The environment remains difficult for the capital goods space, as there is dearth of capex in key industries and fresh power capacity addition. We expect 6% YoY (year-on-year) de-growth in profitability due to deceleration in execution rate by power focussed players and due to margin pressures. Investors are banking on L&T and diesel-powered generator maker Cummins India as these companies are seen as steady performers, with strong fundamentals. The two companies are also likely report Jan-Mar earnings in line with market expectations. Stocks of Cummins India will remain rangebound with a positive bias. Given the current state of the sector, investors prefer L&T and Cummins India as they are seen as safe bets although they are unlikely to see any major upward trend. Even at the current levels, investors continue to be cautious on Crompton Greaves, as there is lack of clarity on the order inflows and restructuring cost incurred by the company's Belgium operations.

Capital Goods Stocks Outlook for the week: 15-18.04.2013

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Stocks of capital goods and engineering companies are seen mixed next week, with investors likely to cherry-pick those of Larsen & Toubro and Cummins India on account of their attractive valuations. L&T is likely to post good results, and is currently trading at a good valuation. The company has strong fundamentals and is largely seen meeting its order inflow guidance for the year. We are closer to the bottom and it is a good time to start accumulating. Investors are likely to remain wary of entering Crompton Greaves at current levels as there is lack of clarity on the order inflows and restructuring cost incurred by the company.

Capital Goods Stocks Outlook for the week (25.03.2013 to 28.03.2013)

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Stocks of most capital goods and engineering companies are seen down next weak amid
fears that political instability could freeze government spending, but sector heavyweight
Larsen & Toubro could gain on value buying. Stock of L&T could rise next week as it is
currently trading at an attractive valuation.
On Tuesday, the Dravida Munnetra Kazhagam, the second largest party in the ruling
United Progressive Alliance, pulled out of the coalition to protest the government's stand
on the issue of Sri Lankan Tamils. On the same day, the Reserve Bank of India
announced a repo rate cut of 25 basis points but hinted that it might not cut policy rates
further unless inflation shows strong signs of cooling. Together these two announcements
have negatively affected the capital goods sector, which was hoping for an economic
boost in the last quarter of 2012-13 (Apr-Mar).