Capital Goods: Buy, sell recommendations for the stocks in this sector | Multibagger stocks in capital goods | IndiaNotes.com
Domestic capex cycle weak; exports hamstrung by subdued global demand
The domestic capex cycle appears to have remained weak. New project announcements declined 64% YoY to INR845b against average of INR2.2t per
quarter over the last three years and the lowest since June 2014, when the new Modi-led government assumed power. Private sector investment proposals fell to their lowest in 15 quarters to INR313b (down 83% YoY) and accounted for 37% of total new project proposals. Though the near-term outlook remains subdued, we note that policy initiatives and efforts are underway to (i) expedite regulatory approvals, and (ii) establish monetary conditions conducive to industrial revival in the medium term.
Net profit growth is likely to remain a muted 3% YoY to INR897m on account of higher interest cost (INR300m v/s INR178m in 3QCY17). Maintain Sell.
We expect EBIDTA margin of 12.8% v/s 19.7% in 2QFY17 on account of weak product mix. EBITDA could decline 24% YoY to INR 2.5b. PAT is expected at INR2.2b (-35% YoY). Maintain Buy.
BHEL is L1 in 5GW of orders, which it expects to be finalized in FY18.
Even in the domestic market, new project awards remain constrained. Maintain Neutral.
CG Power and Industrial
CG Consumer Electricals
Net profit is expected to be INR595m in 2QFY18, as against INR554m in 2QFY17, implying growth of 7.4%.
EBITDA margin is expected to improve 40bp YoY to 16%; net profit is expected to decline 1.5% YoY to INR1.9b. Maintain Buy.
GETD is expected to book net profit of INR370m, as against INR206m in 2QFY17. Maintain Neutral.
Net profit is expected to decline 5% YoY. Maintain Neutral.
Larsen & Toubro
We expect net profit to grow 11% YoY to INR11.5b, led by working capital cycle improvement. Maintain Buy.
Net profit is expected to register 46% growth YoY to INR2.7b, led by higher other income and lower tax rate. Maintain Neutral.
Even in the domestic market, new project awards remain constrained. Maintain Sell.
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