Capital Goods Stocks Outlook for the week – 15 to 18.11.2016

Capital Goods Stocks Outlook for the week – 15 to 18.11.2016

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Stocks of capital goods companies are expected to witness a correction in the upcoming truncated

week, in line with the dull broader market and as data released today showed dismal growth for the

sector in September. Capital goods, a proxy for investment demand in the economy, contracted for

the eleventh straight month in September, declining 21.6% as against a 22.1% fall a month ago,

according to data released by the Central Statistics Office. The sector's growth was 10.1% in the

corresponding month a year ago.

However, some stock-specific action next week, especially for Crompton Greaves and Bharat Heavy

Electricals. Stocks of Crompton Greaves could rise to 95 rupees in the near term, after the company

announced it has a received a binding offer for sale of its global automation business from a Saudi

Arabian company at an enterprise value of 120 mln euros. The acquisition, likely to be completed by

Jan 31, is aimed at meeting Crompton Greaves' targets in terms of debt reduction.

State-owned Bharat Heavy Electricals could see some upside next week as the company, in a postearnings

statement, said its focus on execution of projects and order inflow is expected to remain

strong. For Jul-Sep, the company reported a net profit of 1.09 bln rupees as against a loss of 1.81 bln

rupees in the year-ago period, primarily due to higher sales and better operating performance

during the quarter. Net sales for the quarter rose 12.1% on year to 65.51 bln rupees.

Capital Goods Stocks Outlook for the week – 25 to 29.05.2015

Capital Goods Stocks Outlook for the week – 25 to 29.05.2015

 Seen volatile amid Jan-Mar earnings

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Stocks of capital goods companies are seen volatile next week as a number of them will be detailing their Jan-Mar earnings. Thermax, Crompton Greaves, Cummins India, Suzlon Energy, and Blue Star are among the big companies in the sector which will announce their earnings next week, with sector bellwether Larsen & Toubro detailing its Jan-Mar numbers on May 30.

Crompton Greaves is seen reporting a consolidated net profit of 794 mln rupees for Jan-Mar, up 24% on year, and net sales of 38.64 bln rupees. We expect the company's overseas business to show distinct signs of recovery, but currency movement is seen as a key factor. Engines and generator maker Cummins India is likely to report double-digit sales and profit growth as to strong exports.

Cummins India is seen posting a net profit of 1.57 bln rupees, up 11% on year and net sales of 11.09 bln rupees, up 16% on year. We expect strong exports (low horse power and medium horse power engines) to more than offset the weakness in domestic business. Investors will be eyeing Jan-Mar earnings of Suzlon Energy, as this will be the first quarterly results following the investment of Sun Pharmaceutical Industries promoter Dilip Shanghvi in the company. Clarity on debt management and the domestic sales outlook will be keenly awaited from the Suzlon management.

Capital Goods Stocks Outlook for the week – 11 to 15.05.2015

Capital Goods Stocks Outlook for the week – 11 to 15.05.2015

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Stocks of most capital goods companies are seen volatile next week, tracking the wider

market amid announcement of key economic data and Jan-Mar earnings. Key data such

as industrial production for March, consumer price index for April will be announced on

Tuesday, while wholesale price index data will be detailed on Thursday.

Macro-economic triggers like further rise in crude prices, industrial production and

inflation data and developments on the Minimum Alternate Tax on foreign institutional

investors issue are likely to drive the trading in capital goods shares. Consumer durables and electrical equipment maker Havells India will detail its Jan-Mar earnings of Monday. Shares of Havells and Larsen & Toubro are seen trading up next week, while Bharat Heavy Electricals is seen trading sideways.

Capital Goods Stocks Outlook for the week – 04 to 08.05.2015

Capital Goods Stocks Outlook for the week – 04 to 08.05.2015

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Stocks of most capital goods companies are seen trading in a narrow range next week, adding that stock of Larsen & Toubro may see some gains due to value buying. Though the new government has taken steps to remove bottlenecks and improve the policy environment, yet the delay in the revival of the investment cycle is likely to limit upside for some of the large (capital goods) companies in the near term. Thus, it is advisable to be selective.

We prefer quality stocks like L&T. The sector bellwether fell nearly 3% this week tracking wider market. However, long term investor may see an opportunity to enter the stock if it falls to below 1,600-rupee-per-share level.

The next week will also see Bengaluru-based power and automation major ABB India reporting Jan- Mar earnings on Tuesday. The company plans to further reduce direct raw material costs to 65% of revenues. This could lift the company's operating margin in Jan-Mar.

Capital Goods stocks Outlook for the week – 13 to 17.04.2015

Capital Goods stocks Outlook for the week – 13 to 17.04.2015

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Stocks of capital goods companies are seen trading up next week on the back of favourable industrial production data released yesterday after market hours. Industrial production grew 5.0% in February compared with a fall of 2.0% a year ago, while the capital goods sector grew 8.8% against a 17.6% fall a year ago, according to data from Central Statistics Office.

While the impact of industrial production data will be seen on Monday, inflation data to be released next week will also affect the stocks of capital goods companies.

Stocks of transmission and distribution infrastructure maker KEC International may see some profit booking at the present level. KEC International may see some profit booking in the next week. Shares of state-owned Bharat Heavy Electricals, which reported dismal 2014-2015 (Apr-Mar) provisional results on Apr 6, are seen recovering next week.

Another stock that has been in focus this week was Crompton Greaves. Reports have indicated that the company's consumer goods business, which is proposed to be demerged, has received interest from some private equity player. Any further news on this development may have a positive impact on the shares of the company.

Capital Goods Stocks Outlook for the Week – 06 to 10.04.2015

Capital Goods Stocks Outlook for the Week – 06 to 10.04.2015

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Stocks of most capital goods companies are seen extending gains next week and are likely to be range bound with a positive bias as the pick up in order inflows from government agencies in last week of March is likely to have some spillover.

Capital goods stocks are seen doing well next week, BHEL (Bharat Heavy Electricals) can

specifically see a correction and bounce back.

The last week of March saw many defence, railways and infrastructure contracts being awarded as government agencies were keen to meet their tendering projects. Many companies reported order wins last week. With the signs of spur in domestic order inflow, the sentiment is very positive around capital goods stocks.

Power equipment maker ABB and sector bellwether Larsen & Toubro are seen leading the capital goods rally next week. Overall the sector is likely to remain on highs next week.

However, the monetary policy mid week will be a key trigger that will set the tone for the rest of the week. Both capital goods as well as infrastructure companies are waiting for further relief in terms of interest rates. Any further downward reduction in RBI repo rates will be a welcome change, while a status quo is likely to drag down these sectors along with the wider market.

Capital Goods Stocks Outlook for the week - 23 to 27.03.2015

Capital Goods Stocks Outlook for the week - 23 to 27.03.2015

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The stocks of capital goods companies are seen mixed next week, with action largely remaining stock-specific. However, any further negative development on the land acquisition bill may hurt the sector.

The amended land acquisition bill, which was introduced through the ordinance route in

December, holds the key to the revival of infrastructure projects as well as the Make in India.

We see imminent delays plaguing most of the 35 GW power equipment order pipeline.

We suggest weak preparedness (of the tendering authorities) in terms of environmental clearance, land acquisition and fuel supply for projects expected to be awarded over the next two years, which is around 15-16 GW per annum.

Among the shares seen weakest in the sector is Bharat Heavy Electricals and the stock is seen

moving down to the 234-rupee. Shares of electrical equipment maker Crompton Greaves are also expected to fall.

Capital Goods Stocks Outlook for the week – 14 to 18.07.2014

Capital Goods Stocks Outlook for the week – 14 to 18.07.2014
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Stocks of most capital goods companies are likely to continue trading with a negative

bias next week on the back of profit-booking in the short term. But investors looking to

enter the stock with a four-five month view may resort to buying on dips. Last week, in

the build-up to the regular budget, stocks of capital goods companies and infrastructure

companies were among the biggest gainers.

However, the budget on Thursday did not meet the expectations of the sector, as it did not

provide much clarity on the resolution of issues plaguing the sector. Issues like land

acquisition, environmental clearances for projects and reduction in minimum alternative

tax remain hazy. Whatever sops have been provided for the sector are unlikely to result in an immediate turnaround of the sector.

Capital Goods Stocks Outlook for the week – 23 to 27.06.2014

Capital Goods Stocks Outlook for the week – 23 to 27.06.2014
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Stocks of capital goods companies are seen rangebound with a positive bias next week.

However, the sector could be impacted if overall market sentiment takes a hit on account

of the conflict in Iraq. Another factor influencing the market will be the rise in freight

cost.

Citing concerns over the Indian Railway's financial situation, the government yesterday

increased passenger rail fares by 14.2% and freight rates by 6.4%, effective Jun 25.

While this may negatively impact shares of cement, mining, metal, oil and gas, fertiliser,

and logistics companies the move may translate into long term gains for capital goods

companies that have exposure to railway business such as KEC International, and Larsen

& Toubro.

Although the hike in fares and freight rates will impact inflation, the move is a positive

because it will help improve the financial situation of Indian Railways. With the help of

policy support, timely bureaucratic decision making and improving investor confidence,

the domestic capex cycle (which may have bottomed out in 2013) should strengthen in

the future.

Capital Goods Stocks Outlook for the week – 16 to 20.06.2014

Capital Goods Stocks Outlook for the week – 16 to 20.06.2014

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Trading in most stocks of capital goods is seen range-bound with a negative bias next

week on account of profit-booking as business orders for the sector continue to remain

muted. Ordering activity continued to remain limited only to PSUs (public sector

undertakings); order finalisation from private sector players continues to remain elusive.

Investors are most bearish on stocks of Bharat Heavy Electricals, stocks of which have

seen a steep rise in the run-up to the elections and after the results that saw the Modiled

government take office.

We believe the rally in the stock is overdone as the impact of various measures

announced or proposed on BHEL would be limited in the near term. The structural

issues with the sector and even with respect to BHEL still persist and we don't expect a

fast turnaround in the company. Other Stocks, such as capital goods and infrastructure

major Larsen & Toubro, are also seen erasing the gains they had accumulated in the

past few weeks. Yesterday, L&T stocks ended at 1,685.95 rupees, down 2%, on the

NSE.

Similarly, most analysts remain neutral on electrical equipment maker Crompton

Greaves. Crompton Greaves stock is pricing in a bullish scenario where the overseas

power segment margins revert to the historical peak of 9% achieved in FY11 (vs. -0.4%

in 2013-14). Valuations are close to pre-GFC (global financial crisis) peak, but the bull

argument is that earnings have not normalised yet and a cyclical recovery would

translate into high earnings growth momentum.

Capital Goods Stocks Outlook for the week - 19 to 23.May.2014

Capital Goods Stocks Outlook for the week - 19 to 23.May.2014

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Stocks of most capital goods companies are seen down next week on profit

booking after the initial euphoria in the market on account of the Bharatiya

Janata Party-led National Democratic Alliance's victory in Lok Sabha polls is

seen subsiding. Capital goods stocks were among the major gainers as a BJPled

NDA government is seen kick-starting the depressed infrastructure and

power sector.

The clear mandate achieved by BJP-led NDA was largely factored in by the

market on Friday, which resulted in profit taking in the second half of the

session. And this profit taking is likely to spill over to the next week. Investors

are likely to sell positions in capital goods and infrastructure major Larsen &

Toubro and Crompton Greaves. We believe that potential for a cycle recovery

is high but the recovery could commence only by FY17 (2016-17) given the

constraints of fuel, land and order pipelines. We expect order activity in India

to remain weak over the next 12 months, particularly in 1H FY15 (Apr-Sep) as

we expect it to take 2-3 quarters for projects to start, following formation of a

new government.

Capital Goods Stocks Outlook for the week - 05 to 09.May.2014

Capital Goods Stocks Outlook for the week - 05 to 09.May.2014

Stocks of most capital goods companies are seen range bound with a positive bias next

week as investors are seen taking long positions in stocks of Larsen & Toubro, Bharat

Heavy Electricals and Siemens.

Investors will be eyeing Jan-Mar earnings of power and automation technologies

provider ABB India. The company, which will detail its earnings on Sunday, is expected

positive growth. Investors will be keenly awaiting management commentary on order

inflow and order book of the company. Revenue growth (is) likely to be muted due to

low intake in last few quarters.

Stocks of cooling product makers such as Voltas, BlueStar, Symphony are also seen up as

rising temperatures across the country and likelihood of extended summers are seen

boosting demand. Investors are also seen taking positions in consumer goods companies

owing to the robust demand for cooling products and fans.

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Capital Goods Stocks Outlook for the week - 17.02.2014 - 21.02.2014

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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. 

Capital Goods Stocks Outlook for the week - 10.02.2014 - 14.02.2014

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Following a mixed Oct-Dec earnings season, stocks of capital goods companies are seen taking cues from the wider market in the absence of sector-specific triggers. Investors are seen building positions in stocks of L&T and Crompton Greaves. We are giving suggestion on Crompton Greaves, (1) strong domestic business (2) balance returning to overseas profitability (3) prima facie market pricing in international EV of `5-7 bn (negative equity value) and (4) positive traction in automation, drives and exports. Similarly, long-term investor may also pick up stocks of capital goods and infrastructure major Larsen & Toubro. L&T continues to be the best play in India infrastructure space, given its strong business model, diverse skill sets, strong execution capabilities and relatively healthy/large balance sheet. The same cannot be said about state-owned capital goods company Bharat Heavy Electricals, as the company continued to disappoint investors, posting a net profit of 6.95 bln rupees, down 41.2% on year. We had estimated the company's net profit at 7.04 bln rupees. With a 9.5% revenue compound annual growth rate fall likely over FY13-FY16E along with margin contraction, we expect BHEL to post earnings CAGR decline of 21.1% over FY13-FY16E, thereby capping its valuation. Muted outlook on order inflow in the near term and rising slow-moving projects in the order book remain an overhang.

Capital Goods Stocks Outlook for the week - 27.01.2014 - 31.01.2014

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Stocks of most capital goods companies are seen rangebound with a slight negative bias next week, as most are seen reporting weak Oct-Dec earnings. Investors are seen cherry-picking stocks of Crompton Greaves ahead of its results on Wednesday, as the company is seen posting a consolidated net profit of 818 mln rupees against a loss of 1.89 bln rupees year ago. Revenue is seen rising 12% year on year to 33.26 bln rupees. The electrical equipment maker had incurred a one-time loss of 2.28 bln rupees last year owing to the restructuring of its operations in Belgium. We expect improved performance in Belgium and Hungary to help reduce loss in subsidiaries quarter-on-quarter (729 mln rupees in Jul-Sep). In the domestic business after a weak Jul-Sep in consumer business (12%YoY), we expect consumer segment to bounce back to trend growth rate of 17-18%.

Capital Goods Stocks Outlook for the week - 13.01.2014 - 17.01.2014

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Stocks of most capital goods companies are seen extending losses in the next week as weak macro economic conditions continue to weigh on the sector making it unfavourable among investors. The Index of Industrial Production for November continued its fall at (-) 2.1% as compared to (-) 1.8% in October, according to the data release by the commerce ministry after market hours yesterday. The November IIP, which continues to be in the negative territory for the second month in a row, is extremely worrisome. What is also causing concern is the performance of the manufacturing sector, indicating that new investments are still not happening. With no near-term pick up seen in the industrial expenditure, as evident from the IIP numbers, capital goods sector is unlikely to see investor interest. However, long-terminvestors may enter stocks of capital goods companies that have a robust order book and diversified exposure, taking advantage of the ongoing price correction. Usually, Oct-Dec and Jan-Mar are expected to be strong quarters for the sector, as large government orders are finalised during this time. We expect revenue growth to be broadbased in the sector, since Oct-Apr usually signals acceleration in project execution as well as order intake. We estimate the turnover of our coverage universe to rise 15% yoy, with large companies like L&T (up 20% year on year) and Thermax (up 30% year on year) leading the pack. As the Oct-Dec earnings season draws near, long to medium term investors may pick shares of companies such as Larsen & Toubro, Voltas, Havells India and KEC International. Industry major, L&T is expected to grow at 15% year on year, while VGuard Industries Ltd is likely to grow at 20% year on year on the top line front.

Capital Goods Stocks Outlook for the week - 06.01.2014 - 10.01.2014

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Stocks of most capital goods companies are likely to continue trading with a negative bias next week as profit booking is expected to continue in the absence of near term positives for the sector. The rally of capital goods stock in December was not sustainable as there are no key positives for the sector in the near term. Fundamental issues of sluggish industrial capex, low demand from power sector and weak capital formation in the economy need to improve for the sector to do well. Long-term investor may bet on stocks of capital goods companies, which have a robust order book and diversified exposure. However, the recent rally in stocks of the sector has pushed valuations to a peak, making it unprofitable for investors to enter the stocks. 

Higher exposure to international orders, which traditionally offer lower margins as compared to domestic projects, higher debt and increasing working capital pressure are some of the negatives for stocks of L&T in the short term. With the power sector still waiting to see the actual impact of recent spate of reforms undertaken by the government, investors are also seen bearish on stocks of boiler turbine generator makers such as Siemens, ABB and Alstom, among others. 

Capital Goods Stocks Outlook for the week - 30.12.2013 - 03.01.2014

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Stocks of capital goods companies are largely seen up next week as investors may pick up stocks of companies such as Larsen & Toubro and Crompton Greaves because they expect these companies to gain from their exposure to international market in the short term. Crompton Greaves has a strong overseas operation, which is likely to offset the weak domestic performance in the near to medium term. Our analysis of trends from the international peer group for Crompton Greaves suggests that the worst might be over as far as growth and pricing pressure in the power T&D (transmission and distribution) sector is concerned. 

We note that this is probably the right time to look at CRG's (Crompton Greaves) international portfolio more constructively. L&T is also placed well in its international order flow space. The company expects international orders to pick up from 149.66 bln rupees in 2012-13 (Apr-Mar) to 250.00 bln rupees in 2013-14 (Apr-Mar). The company's total order inflow at the end of the current financial year is expected to be at 990.00 bln rupees. Investors are confident of the company achieving its growth target of about 15% in revenue and 20% in order inflow for the current financial year, given its robust order backlog, healthy order inflows and strong execution capabilities. 

Investors are also positive on L&T's plans to raise funds through dilution of stake in L&T Infrastructure Development Projects and to monetise existing non-core assets such as Dharma port. We believe this would help the company fund its equity requirement. It is also best placed to benefit from a gradual recovery in the capex (capital expenditure) cycle given its diverse exposure to sectors and a strong balance sheet. Stocks of Bharat Heavy Electricals Ltd, which has seen significant run-up in the last one month, will move in a narrow range, as the stocks are already trading near the resistance level. Investors are of the view that the company valuations are unjustified given deterioration in operating metrics. In the second half, BHEL's margins are will remain under pressure as execution issues with some clients persist. Stocks of the company have rallied in the recent past after new power projects were announced by the government, making it mandatory for the plant developers to source domestic equipments. However, the scope for the company to benefit from it anytime soon is unlikely. The domestic market has still not recovered, which will keep its order flow level low. 

Capital Goods Stocks Outlook for the week - 23.12.2013 - 27.12.2013

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Stocks of most capital goods companies are seen rangebound next week with absence of any major sector-specific triggers. However, investors are seen bullish on shares of sector bellwether Larsen & Toubro, state-owned Bharat Heavy Electricals and Avantha Group-owned Crompton Greaves. L&T yesterday said it is in talks with a global investor for selling stake in its subsidiary. The company has also sought Foreign Investment Promotion Board's approval for foreign direct investment for its arm.

In September, the Mumbai-based capital goods and engineering major had said it expects its arm L&T IDPL to have an equity requirement of around 82 bln rupees over 2014-18. L&T IDPL has been looking to raise around 20 bln rupees through equity infusion by an investor, the management had said. In addition to this, L&T has traditionally posted strong results in the second half of the financial year as a lot of large government orders get finalized during this time.

Stocks of electrical equipment maker Crompton Greaves are also seen trading with a positive bias as the company is expected to show improvement in its Oct-Dec quarter results, owing to the completion of restructuring at its plant in Belgium.

Capital Goods Stocks Outlook for the week - 16.121.2013 - 20.12.2013

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Stocks of capital goods companies are expected to be rangebound next week as poor industrial production data for October may dampen optimism regarding improvement in investment cycle due to change in government. Capital goods sector industrial output rose 2.3%, compared with 7% a year ago. However, overall industrial output declined 1.8% in October against a 2% growth last year. There is optimism still, that capex cycle will recover post-elections. However, it is a long-term positive. Currently, the industrial output is low, which will affect the companies. Although the stocks will not tank, but the rally position will tone down; there is no significant positive currently. Investors are, however, expecting slight improvement in order inflow and operating margins in the coming few months. Analysts said that if growth sustains and order inflow trend broadens for the next few quarters, policy decisions after the elections would give a positive fillip to the industry. Market is positive about business turnaround in the medium term on high utilization in key sectors, some uptick in investor sentiment, but this is not corroborated by on-ground project execution. Investors will prefer companies that operate in West Asia, as orders with high margins are expected to flow from the region in near term. Increased order flows from the region are likely to help companies such as Voltas Ltd and Larsen & Toubro. Investors are also positive on Crompton Greaves due to its exposure to overseas orders. Competition from Chinese and Korean players may offset some of the gains