PL Sector Report - Capital Goods - Oct-Dec'23 Earnings Preview - Robust inflows & execution to drive healthy Q3
Prabhudas Lilladher Pvt Ltd
Capital Goods – Amit Anwani – Research Analyst, Prabhudas Lilladher Pvt Ltd
Oct-Dec'23 Earnings Preview – Robust inflows & execution to drive healthy Q3
We expect our capital goods coverage universe to report healthy performance in Q3FY24 led by 1) continued execution of strong opening order books, 2) robust demand/orders/volumes in domestic market, and 3) traction in key export markets such as Middle East, Americas, Africa etc. Overall, we expect Revenue/Adj. PAT growth of ~16.6%/22.0% YoY (13.5%/14.1% YoY ex-L&T). Margin guidance, European demand outlook, order/enquiry pipeline and impact of elections on domestic demand/orders will be key monitorables. Our top picks are L&T, Siemens, ABB, Triveni Turbine, and Praj Industries.
Order inflows (OI) likely to be strong in Q3FY24, owing to substantial order wins announced by companies like BEL/L&T/KEC/KPIL across segments such as Defence, T&D, Water, Hydrocarbons, Railways, Green Energy, etc. During the quarter, L&T announced OI in range of Rs535-820bn, while T&D EPC companies such as KEC/Kalpataru announced healthy OI worth ~Rs39bn/~Rs45bn respectively. BEL announced robust inflows worth ~Rs122bn. Government orders may be delayed during the upcoming elections, but the long-term outlook remains strong across T&D, Railways, Data Centers, Defence etc. especially in India.
Product/consumables companies’ revenue to grow by ~11.0% YoY, led by strong growth in the domestic market. EBITDA margins for most product companies are likely to be stable owing to rising volumes offset by falling realizations and higher operating expenses. Within product companies, we expect Consumables to report ~4.1% YoY growth, (CUMI -1.4% YoY & GWN 15.0% YoY) factoring in healthy industrial demand offset by lower realizations due to Chinese dumping of Ceramics and Electrominerals.
EPC companies’ revenue to grow ~19.4% YoY led by healthy execution of robust opening order books. EBITDA margins are likely to expand with softening commodity prices and better mix.