Rs 8.45 trillion & rising: Orders flood major capital goods firms

Both India and overseas demand behind the rush

India’s leading capital goods and engineering firms are in the midst of one of their busiest seasons, with the combined orderbook surging past Rs 8 trillion in value. 

As on September 30, 2023, 13 of India’s top 15 listed capital goods and engineering firms, for which data for the September 2023 quarter was available, had a total orderbook worth Rs 8.45 trillion — a number unseen at least since 2018-19.

“This intuitively looks like an all-time high factoring in inflation,” said Anupama Arora, a senior independent analyst who tracks the capital goods sector. 

The surge in orders is largely driven by India’s increasing demand for construction and infrastructure, besides substantial orders from international markets, particularly energy-related markets. But this boom presents its own set of challenges. Industry executives and analysts said that resource management, including labour and working capital, managing commodity cycles, and maintaining order growth rates will be key challenges to overcome

According to Himanshu Chaturvedi, chief strategy and growth officer for Tata Projects, the private sector capex, which had been subdued for several years, has begun to rebound. This resurgence is due to “specific government interventions like the production-linked incentive scheme, mid-cycle capacity utilisation, and other factors, such as deleveraged corporate balance sheets, healthy profitability, and a well-capitalised banking system.”

The unlisted company of the Tata group had an outstanding orderbook of Rs 48,000 crore as of March 2023.

For industry leaders, such as Larsen & Toubro (L&T), a combination of increased infrastructure-related orders in India and large orders from international hydrocarbon markets has contributed to an all-time high orderbook of Rs 4.5 trillion. Besides, at least two of the 15 companies —Ashoka Buildcon and Thermax Global — have reported their current orderbooks to be the highest ever.

While robust orderbooks are generally a positive sign, they come with their own set of challenges. R Shankar Raman, chief financial officer and whole-time director for L&T, in a recent interview with Business Standard said: “The challenge for us is going to be resource management without doubt.”

To address similar concerns, companies like Kalpataru Projects International are focusing on resource augmentation. “We are going to campuses and skilling labour to meet the rise in demand for labour in tandem with orders. Further, we have added newer assembly lines at some of our factories to accommodate the increase in order wins,” said Amit Uplenchwar, director, Kalpataru Projects International -- one of the 15 top companies in this space having an outstanding order book of Rs 47,040 crore as of September 2023.

Uplenchwar further said multiple positive factors are contributing to this growth, including India’s infrastructure boom. “There has also been a rise in demand for contractors who can execute large-scale realty projects with the required credit support. The streamlining of regulations around realty, such as RERA, has led to this rise in demand in the buildings segment,” he said.

  Analysts with Geojit Financial Services noted, " Govenrment's thrust on capex spending and a revival in private capex provide ample impetus to the sector. The pick-up in T&D order book and improvement in margins are positive for KEC." KEC is of the 15 listed entities and reported an order book of Rs 31320 crore as of September 2023. 

But not all companies share the same optimism. G R Infraprojects, for example, apprehends that the upcoming elections could disrupt the growth momentum. The company, one of the 15 listed companies, has an orderbook of Rs 20,000 crore. Its management recently revised the new order win outlook downwards by half in a call with analysts.

“Facing intense competition, particularly for small-sized projects, and anticipating potential impacts from the upcoming general elections on awarding activities, management has revised its order inflow guidance downward for FY24 to Rs 10,000 crore,” analysts with Motilal Oswal noted in a report on the company.

However, the situation varies across companies. For instance, L&T's management expects to over-achieve its stated order inflow targets for the current financial year.