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