Power equipment stocks keep the faith

On a day when the markets witnessed highly volatility, power equipment stocks held sway.

According to analysts, a positive outlook on the sector, as well as encouraging September-quarter results, have contributed to the advance in the stock prices recently.

Most of the stocks in this category such as the ABB, BHEL, Alstom Projects and Bharat Bijlee have appreciated over the past one week in the range of 3.2-22 per cent.

An analyst with a leading domestic brokerage firm, noted that the operating margins in the power equipment sector, have improved and so have the order books of most major players.

Steel prices have stabilised, leading to faster bottomline growth. All these factors, have led to a positive earnings outlook of ABB, Crompton Greaves, BHEL, Siemens and Bharat Bijlee for the next two years.

Expectations of huge demand from the power generation sector, due to a huge addition of capacity, over the next few years have led to the buildup in power equipment scrips.

Power equipment manufacturers would benefit from the action expected in the power sector in the coming years, when additional capacity is put in place. Moreover, the sector has received a boost with the government's continued thrust on power for all.

Leading companies such as the ABB and BHEL registered robust results in the just concluded September quarter. ABB's top line grew by 27 per cent, while the bottom line growth amounted to 47 per cent at Rs 52.95 crore.

ABB India's order intake also rose by 40 per cent to Rs 916 crore in the quarter ended September 2005. Meanwhile, BHEL announced a 64.4 per cent rise in net profit to Rs 260.2 crore during the September quarter compared with Rs 158.2 crore posted during the corresponding quarter last year. Net sales increased by 45.67 per cent to Rs 2,787 crore against Rs 1,913 crore during the same period in 2004.

On Wednesday, Alstom Projects shot up by 2.4 per cent to Rs 197. Bharat Bijlee (up 4.4 per cent to Rs 558) and BHEL (up 0.25 per cent to Rs 1427), were the other major gainers. The ones which dipped marginally were ABB (down 1.9 per cent to Rs 1,939), Siemens (down 2.24 per cent to Rs 3,235) and Suzlon Energy (down 0.55 per cent to Rs 851). Nevertheless, all these stocks have gained over the past few days.

The Sensex, which firmed up in the early trades, took a U-turn in the later part of the day. It lost 142.4 points (1.6 per cent) to close at 8,788.8. This was in spite of strong Q2 gross domestic product growth expectations on the back of strong growth in services and manufacturing sectors.

Earlier in the day, the Prime Minister had said in a statement that India's GDP is likely to expand 7.5 per cent in FY06.