 "Capital goods firms see muted growth")
Order intake and sales have remained weak in the March quarter results but profitability of companies in the space has improved because of cost-saving and lower raw material and fuel costs.
Data from Capitaline show the combined revenue of capital goods companies which have declared results so far had grown 1.8 per cent from the corresponding quarter last year. Profit before interest, depreciation and tax is up 6.1 per cent and adjusted net profit by 14.1 per cent.
Also Read
Among the major companies, ABB and Siemens witnessed negative (-6.3 per cent) and flat growth order intake (1.8 per cent), respectively, in the March quarter. Sales growth also remained weak. However, the margins of both companies improved because of lower raw material costs and cost-saving.
Alstom T&D’s fourth quarter order intake declined from a year before but the full year’s intake grew 36 per cent because of one large order. Greaves Cotton also reported a decline in revenue because of flat growth in engine segment and closure of the construction equipment business. The latter move, though, improved the margins.
While ABB and Siemens remain confident of a revival in the sector due to expected government spending in infrastructure, particularly in railways, smart cities and renewable energy, the quarterly results have an overhang of slow recovery.
Analysts say capacity utilisation in key industries (power, cement and steel) remains below 70 per cent. So, the private sector is not planning for expansion. “Essentially, it is not liquidity that is impacting the pace of order inflows but lack of demand from end-users,” Kotak Institutional Equities said in a post-results note on ABB India.
“Order flow in the capital goods sector is linked to revival of project capital expenditure. Unless issues pertaining to stalled projects are sorted, fresh investments would be limited. More, capacities in key sectors are far in excess of demand. There are a few positive factors, though. Public sector undertakings like NTPC insist that bidders must have domestic manufacturing capabilities. Also, in transmission and distribution (power), we have seen good orders by PowerGrid. These have been alleviating the problems to an extent but we expect a broad-based revival not before the second half of the current financial year,” said Anjan Ghosh, executive vice-president at credit rater ICRA.
In a post-results interaction with analysts, Alstom T&D’s managing director, Rathin Basu, said 2015-16 is expected to be as challenging as FY15. The outlook for fresh orders remains flat.
While Alstom is upbeat on PowerGrid, NTPC and state generation and transmission utilities, the outlook on private sector investment in power remains tepid due to high levels of non-performing assets, especially among independent power producers, plus the reluctance of banks to extend funding.
SLOWING DOWN
- Order intake and sales have remained weak in the March quarter results
- Profitability of companies has improved because of cost-saving and lower raw material and fuel costs
- Data from Capitaline show the combined revenue of capital goods companies, which have declared results so far, had grown 1.8 per cent from the corresponding quarter last year
- Profit before interest, depreciation and tax is up 6.1 per cent and adjusted net profit by 14.1 per cent
- Analysts say capacity utilisation in key industries (power, cement and steel) remains below 70 per cent. So, the private sector is not planning for expansion