Capital Goods share price target

Companies like Larsen & Toubro and KEC with exposure to Middle East and North Africa (MENA) region are expected to get moderately impacted by the recent more than 30% fall in crude oil prices to US$35/barrel. This is expected to impact overall orders/awarding from MENA region. Companies like Elgi Equipments, AIA Engineering, Thermax, Engineers India and Kalpataru Power with exposure to international geographies like Europe, Middle East, China for sales or essential raw material may get impacted. Accordingly, we have tried to factor in the additional risk and revised our...

For the past five years, investments in new asset creation has been largely driven by the public sector and in sectors like roads, railways and other infrastructure segments.

Refer to important disclosures at the end of this report Q4FY19 unlikely to offer positive surprises; Top picks: L&T;, Cummins We expect a mixed performance for companies under our coverage universe in Q4FY19. While L&T;, Cummins and Kalpataru are likely to post robust earnings on strong execution in the domestic market, we estimate a weak earnings outlook for KEC, Triveni Turbines, Siemens and ABB due to weak order backlog. L&T;'s order activity has been strong; however, for others, we expect ordering to be largely...

Rolling forward the valuation methodology from Sept-19E to Dec-19E, the TPs for Skipper/KKC/EIL/TMX have increased to Rs 271 (vs 261)/ Rs 1,016 (vs Rs 1,007)/Rs 216 (vs Rs 183)/Rs 1,014 (vs Rs 985). Also, the TP for Swaraj has increased to Rs 2,566 (vs Rs 2,489). Our coverage universe is likely to witness ~6% YoY growth in revenues. While Engineers India (EIL), Skipper and Swaraj Engines may clock healthy revenue growth, Cummins (KKC)/Thermax (TMX) are likely to witness lower growth at ~5/6% due to sluggish exports/lower book to bill. While Skippers revenue growth may be aided by the likely come back of the polymers segment, EILs growth is on the back of a strong order book. Swarajs growth may be driven by a 13% YoY volumes growth.

First, we disagree with macro-narratives. Second, the outlook too remains weak. Third, thereby, the key is in assessment of individual projects bottom-up. Though we remain bearish on domestic long cycle orders, Q4FY17 should be treated as a tactical exception. From project closures to provisions reversals, the jump in EBITDA is plausible. Thereby, we like: LT, BHEL, and NBCC IN. We find no reason to cheer from macro numbers At a first glance, on an annual base, project commissioning is down. As against Rs.5.66 trillion in FY16, the project commissioning indicates FY17 ended a tenth down at Rs.5.13 trillion. CMIE, a database provider, asserts there is yet another Rs.1.88 trillion, whose commissioning status is...

Voltas (pick up in AC demand), Engineers India (expected pick up in refining capex) and Kalpataru Power (substantial improvement in the order book) are our top picks in the sector. We downgrade Cummins, AIA Engineering & KECI to NEUTRAL on the back of steep valuations.

We are cautiously optimistic on domestic long cycle orders. Progress on slow moving is the only ray of hope. Project announcement might take a back seat. Yet we have not given up our hopes. In domestic short cycle orders, the much-needed green-shoots specifically from Automobiles and fast moving consumer goods has rescinded back to square one, we are told. Yet we continue to like: SIEM, KKC, LT, BHEL, and NBCC IN. Products: Domestic/Long cycle we are cautiously optimistic! Products have little impact from demonetization, we foresee. Yet we remain cautiously optimistic. For long cycle products, specifically addressing to BHEL, we continue to believe that...

We expect 2QFY17E to be on similar lines as 1QFY17, wherein the order inflows would be driven by public sector capex viz. power transmission, roads, railways and renewables. Hopes are riding on a pick-up in defence & domestic hydrocarbon orders. However we expect the same to materialise only in H2FY17E. Industrial capex in the pvt sector continues to remain elusive.

New project announcements +24% qoq after adjusting for projects with low visibility: Overall, new projects announced in 2QFY17 (Rs 1.97tn) were up 32% qoq, but down 19% yoy. However, adjusting for lowervisibility projects (Rs 500bn JSW steel plant), they increased24%qoq,butfell40%yoy.Manufacturing(Rs1tn,drivenbymetalsandrefinery) and transport (Rs 611bn, led by aircrafts) accounted for 83% of new announcements. By ownership, the private sector accounted for 70%. Key projects include Go Air's aircrafts order (Rs 517bn), JSW's Odisha steel plant (Rs 500bn), CPCL's Nagapattinam refinery (Rs...

Top picks: Kalpataru Power (robust order flows enhancing revenue visibility), Suzlon and Inox Wind (driven by strong expected order flows). Reco change: We downgrade L&T; to Neutral as valuations turn expensive post the recent run up.