Q1FY21E is likely to be subdued for the capital goods universe in terms of order inflows, execution that was affected by labour migration, lockdowns due to Covid-19. L&T has announced orders ranging at Rs. 2500-5000 crore (ex-services) across transportation infrastructure, water treatment business but is expected to see subdued order inflows considering crude oil crash, project delays/deferrals amid domestic slowdown and less-than-expected conversion of the tendering pipeline.
Working capital, cash flows to be key monitorables...
Overall, EPC companies like L&T, KEC, BEL and Cochin Shipyard are expected to continue to face working capital and cash flow challenges amid increasing receivables, vendor support and slower pace of execution. Thermax is expected to have some cushion owing to stronger balance sheet and cash flows to manage the situation in near term. Product companies like Greaves Cotton, Timken India, Elgi Equipment, AIA Engineering having a strong balance sheet, zero debt and healthy cash balances that are likely to give some cushion to face challenges like economic slowdown, demand/supply disruptions and stress on working capital in the medium term.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_CapitalGoods_Q1FY21.pdf