Q3FY21E is likely to be a reasonable quarter for the capital goods universe in terms of order inflows while execution may further improve sequentially as we expect execution pick-up with workers almost returning to sites reaching more than ~95% of pre-Covid levels during the quarter amid normalising economic activities. Product companies are likely to post a decent quarter amid rebound in key industries like automobile and industrials. Larsen & Toubro (L&T) announced EPC orders are estimated to be more than ~Rs. 59000 crore (as on date, ex-services segment) across high speed rail, construction, water effluent, hydrocarbon, transportation, mining equipment, power T&D, heavy civil infrastructure and defence segments indicating robust order inflows for the quarter. Also, the order pipeline remains robust across T&D, green energy corridor, railways, transportation, water & infrastructure, etc. Key risks remain project delays/deferrals and less-than-expected conversion of the tendering pipeline.
Reasonable performance expected among EPC companies...
Overall, EPC companies are expected to post a moderate performance as execution is likely to rebound amid gradual unlock measures by the government to open up the economy. Power T&D companies like KEC, KPTL are expected to report combined revenue, EBITDA, PAT growth of 14.2%, 9%, 19% YoY, respectively, aided by execution pick-up in key markets. L&T (standalone, ex-E&A) is likely to report reasonable performance with marginal revenue growth of 0.5% YoY to Rs. 19984.8 crore, EBITDA expected to grow 9.9% to Rs. 1608.8 crore while adjusted PAT (ex-E&A) is expected to grow 19.2% to Rs. 1260.6 crore impacted by higher other income and tax adjustment in base quarter. Thermax' revenue, EBITDA are expected to de-grow 6.5%, 10.3%, respectively, impacted by execution and supply chain disruptions. On the defence front, BEL is expected to perform better with revenue growth of 26.7% to Rs. 2878.1 crore while EBITDA is expected to grow 39.6% to Rs. 495.1 crore YoY. Cochin Shipyard is expected to report revenue, EBITDA growth of 3.8, 1.0% YoY, respectively, owing to moderate execution in shipbuilding and ship repair activities.
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