Mr. Amit Anwani Research Analyst at Prabhudas Lilladher.
We expect our capital goods coverage universe to report healthy revenue growth in Q1FY23 on low base of last year, led by execution pickup, although some impact may be seen due to supply chain disruption. Margins are likely to be affected in the near term, owing to higher commodity prices and higher freight cost. We expect revenue growth of ~21.3% YoY (25.9% YoY ex L&T) for our coverage universe with product companies expected to report growth of 32.8%, led by healthy demand in both domestic as well as exports market and price pass through. For EPC companies, we expect revenue to grow ~17% YoY (13% YoY ex L&T), owing to continued execution momentum amidst low base. Working capital cycle will be a key monitorable.
In our view, healthy tender/enquiry pipeline, government's thrust on overall infrastructure development, private capex picking up and continued demand for new edge sectors such as data center, metro, hydrogen, EV, digitalization, energy efficiency etc. will support ordering activity and will report healthy growth in FY23. Though enquiry and tender pipeline has improved over past few quarters, pace of order conversion will be a key monitorable (as there can be some spill over in near term due to higher commodity prices and supply chain disruptions). In domestic market, traction continues to remain strong from sectors such as infrastructure, data center, railways, metros, pharma, chemical, metal, mining and F&B. On exports front enquiry pipeline stands strong from regions like Middle East, Africa, US, and SAARC. Guidance on execution pace, margins, working capital, tender pipeline and update on supply chain scenario will be key monitorable.
We continue to prefer companies with strong balance sheet, low debt levels, good corporate governance, well managed working capital cycle and long-term scalability. Our top picks in the sector are L&T, BEL and Siemens.