Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Research

| More

Capital Goods - Results Preview - Higher Commodity Prices to Drag Margins - Reliance Securities

Posted On: 2021-10-10 16:16:43 (Time Zone: IST)


The economic activity is back to normalized levels in 2QFY22, with a strong uptick seen in various leading indicators and healthy rise in COVID vaccinations. Projects' execution and supply chain also on track with laborers coming back to sites.

Most manufacturing facilities and project sites were fully operational during 2QFY22 after the lockdown and restrictions seen in some part of 1QFY22. We expect utilisation to have a normal level in 2QFY22, while the tendering inquiry has also picked up. Ordering activity picked up led by higher government spending in railways, roads, metro, power T&D and oil & gas space. However, private sector capex was muted but is expected to pick up over the next few quarters. While products companies are likely to witness a strong YoY performance on a low base, opportunity was lost for cooling products due to the lockdown in the peak season. The impact of higher commodity prices is likely to dent the companies margins under our coverage universe to some extent.

For defence sector, we expect healthy traction during 2QFY22. BEL's Karnataka plant was closed for a few weeks during 1QFY22 due to lockdown and supply chain issues which impacted LRSAM execution in 1QFY22. However, with normal operations in 2QFY22, we expect healthy execution.

For products companies, despite the several rounds of price hikes, margins are likely to remain muted owing to a sharp uptick seen in commodity prices; however, we don't see any impact of the price hike on demand. While the second COVID wave during 1QFY22 dampened the overall business sentiment, is likely to see a healthy growth in 2QFY22. Channel inventory of fans is high, as the peak summer season was impacted by the second COVID wave. The B2B lighting business continues to remain weak due to low ordering activities from the government and private players, while the B2C LED light continues its moderate growth trajectory. Current discounts and promotional incentives are slightly lower due to cost pressure on manufacturers. Overall enquiry level is healthy while footfalls are lower due to restrictions on entry to malls, whereby only fully vaccinated consumers are allowed.

We expect our Capital Goods coverage universe to report 11% YoY, 7% YoY and 12% YoY growth in revenue, EBITDA and PAT respectively in 2QFY22E. EBITDA margin is expected to decline by 40bps YoY to 11.1%.

Our View: While the second COVID wave with the resultant lockdowns in few states in Apr'21 and May'21 impacted the execution and demand revival in 1QFY22, we expect it should be compensated going ahead with the withdrawal of restrictions. The Indian economy witnessed a sharp recovery in the past few quarters, while the strong capex revival in capital goods sector is likely to continue ahead. We expect the consumer durable sector to see a strong demand revival going forward, along with a significant change in consumer preference for quality and branded products. Improving business visibility has transformed into earnings upgrade and valuation expansion for the companies under our coverage universe. To reduce India's dependence on foreign military equipments, the ministry of defence has identified 692 items for Indigenization and 'Make-II' list, which will benefit the defence companies ahead. The ministry of defence announced a second negative import list of 108 items, which are likely to provide a boost to Atmanirbhar Bharat and indigenisation in the defence sector, with active participation of public and private sectors.

Our Top Picks: L&T, Kalapataru Power and KEC International

Link to the report


Click here to send ur comments or to feedback@equitybulls.com

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.





Other Headlines:

UltraTech Cement - Revenue Inline, inflated cost dragged EBITDA - YES Securities

Craftsman Automation - Q2FY22 First Cut - YES Securities

Ultratech Cement - 2QFY22 Result Update - Elevated Costs Pressure Led To Earnings Miss - Reliance Securities

L&T Infotech - Q2FY22 Result highlights - YES Securities

UltraTech Cement - Margins to sustain despite cost escalations - ICICI Securities

Hatsun Agro Products - Strong results; stretched valuations - ICICI Securities

Larsen & Toubro Infotech - Consistently consistent! - ICICI Securities

Company Update - GTPL Hathway - ICICI Direct

Chemicals - Q2FY22 Results Preview Report - HDFC Securities

Consumer Durables - Q2FY22 Results Preview Report - HDFC Securities

HCL Technologies - Q2FY22 Result Update - YES Securities

Avenue Supermarts - Q2FY22 Result Update - YES Securities

Wipro - Q2FY22 Result Update - YES Securities

Mindtree - Q2FY22 Result Update - YES Securities

HDFC Bank - Q2FY22 Result Update - YES Securities

Avenue Supermarts - Recovery tracking well - ICICI Securities

Mahindra CIE Automotive - Strong performance amid supply chain issues - ICICI Securities

PNB Housing Finance - Preferential issue called off; overhang resurfaces - ICICI Securities

Q2FY22 Result Preview - Real Estate & Infrastructure - ICICI Direct

Q2FY22 Result Preview - Healthcare - ICICI Direct

Q2FY22 Result Preview - Chemicals - ICICI Direct

Gladiator Stocks - Vardhman Special Steel - ICICI Direct

Q2FY22 Result Update - HDFC Bank - ICICI Direct

Q2FY22 Result Update - Wipro Ltd - ICICI Direct

Q2FY22 Result Update - HCL Technologies - ICICI Direct

Q3CY21 Company Update - Mahindra CIE - ICICI Direct

Q2FY22 Result Update - MindTree Ltd - ICICI Direct

Q2FY22 Result Preview - Oil & Gas - ICICI Direct

Q2FY22 Result Update - Infosys - ICICI Direct

Consumer Durables - Fans - a compounding story but underrated - HDFC Securities

Cement - Strong demand; rising costs to hit margin - HDFC Securities

Maintain BUY on HCL Technologies - Deal wins to boost growth - HDFC Securities

Maintain BUY on Cyient - Improving growth vectors - HDFC Securities

Maintain BUY on Infosys - Growth engine revving up - HDFC Securities

Maintain ADD on Wipro - Continued growth momentum - HDFC Securities

Maintain ADD on Mindtree - Decade-high growth! - HDFC Securities

Peak in the headline wholesale inflation is behind us - WPI Sep'21 - Acuité Insights

Wipro - 2QFY22 Result Update - Continued Growth Outperformance; Raise TP to Rs760 - Reliance Research

Exchanges, Staffing and Internet - Q2FY22E Results Preview - Mixed bag; visibility improving - HDFC Securities

FMCG & Alco Bev - Q2FY22 Results Preview - Demand resilient; EBITDA to stay under pressure - HDFC Securities

Infosys - 2QFY22 Result Update - Superior Execution Deserves Multiple Rerating; Raise TP to Rs2,120 - Reliance Research

Mid-caps - Q2FY22 Results Preview - Healthy YoY Growth Across Segments - Reliance Research

Ramkrishna Forgings - 2QFY22 Result Update - Reliance Research

Expect CPI to be 5.5% for FY22 - Acuite Ratings

Industrials - Q2FY22 Results Preview - Strong execution pick-up - HDFC Securities

Real Estate - 2QFY22 Results Preview - Strong presales momentum - HDFC Securities

Sunteck Realty - All eyes on festive season - ICICI Securities

Prestige Estates Projects - Festive fervour kicks in - ICICI Securities

Company Update - Motherson Sumi Systems - ICICI Direct

Company Update - Indian Energy Exchange - ICICI Direct


Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020