Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  

| 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

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., 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. 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:

Mphasis - 2QFY22 Result Update - Growth Resiliency Continues; Raise Target Price - Reliance Research

Maintain ADD on Havells India - Outperformance continues; miss on margin - HDFC Securities

Indraprastha Gas - Company Update - EV vs CNG; TCO Economics Favour CNG - Reliance Research

FinTech Playbook - Discount Brokers - 'Nudging' the long tail of standalone brokers - HDFC Securities

Tata Communication - Revenue growth remains muted - YES Securities

Havells India Ltd - Q2FY22 Result Update - YES Securities

ICICI Lombard General Insurance - Q2FY22 Result Update - YES Securities

Syngene International Ltd - Lack of near term triggers - YES Securities

Mphasis - Q2FY22 First Cut - YES Securities

IndiaMART InterMESH - Q2FY22 First Cut - YES Securities

Sterlite Technologies - Q2FY22 First Cut - YES Securities

Can Fin Homes - Q2FY22 First Cut - YES Securities

Havells India - 2QFY22 Result Update - Strong Revenue Growth; Higher Commodity Prices Impact Earnings - Reliance Research

TVS Motor - 2QFY22 Result Update - Healthy Exports Coupled with New Launches to Aid Higher Margins - Reliance Research

Maintain SELL on Jubilant FoodWorks - No big fireworks unlike in other discretionary names - HDFC Securities

Sonata Software - Strong execution - HDFC Securities

Navin Fluorine International - Muted performance - HDFC Securities

Maintain ADD on Heidelberg Cement - Cost pass-through efforts to protect margin - HDFC Securities

Maintain BUY on Mastek - Minor misses, recovery underway - HDFC Securities

Oil and Gas - Q2FY22 Results Preview Report - HDFC Securities

Building Materials - Q2FY22 Results Preview Report - Strong recovery! - HDFC Securities

Jubilant Foodworks - Soft SSSG in the quarter but record store openings points to strong outlook ahead - YES Securities

L&T Technology Services - Overall, performance was ahead of expectations - YES Securities

Just Dial Ltd - Both revenue and EBITDA below expectation. PAT boosted by higher other income - YES Securities

Syngene International Ltd - Lower gross margin lead to EBIDTA miss - YES Securities

GMR Infrastructure - Airports to drive value; initiate with a HOLD - ICICI Securities

ICICI Prudential Life Insurance - Business mix more balanced than ever; volume vs margin pose near-term quandary - ICICI Securities

HeidelbergCement India - Margins impacted by cost escalations - ICICI Securities

Navin Fluorine International - Revenue growth still some time away - ICICI Securities

Havells India - Strong volume led revenue growth - ICICI Securities

Q3CY21 Result Update - ACC Ltd - ICICI Direct

Q2FY22 Result Update - 5paisa Capital - ICICI Direct

Q2FY22 Result Update - Hindustan Unilever - ICICI Direct

Tata Communications - Q2FY22 First Cut - ICICI Direct

Q3CY21 Result Update - Nestle India - ICICI Direct

HeidelbergCement India - 2QFY22 Result Update - Steady Volume and Better Realizations Aid Performance - Reliance Research

Maintain BUY on UltraTech Cement - Strong demand moderates impact of cost inflation - HDFC Securities

ACC - 2QFY22 Result Update - Performance Beat Despite Elevated Input Costs - Reliance Securities

Maintain ADD on L&T Infotech - Riding the wave - HDFC Securities

Maintain REDUCE on Hindustan Unilever - Miss in volume, no respite on margin front - HDFC Securities

Maintain REDUCE on Nestle India - Revenue momentum sustains; miss in margin - HDFC Securities

L&T Technology Services - ER&D leadership shines through - HDFC Securities

Maintain BUY on ACC - Mixed performance - HDFC Securities

Power Plus - Demand remains strong but coal stock is critical - HDFC Securities

At 11-year high, BSE Realty Index still lower than 2008 peak

Leveraged financials - 2QFY22E Results Preview Report - HDFC Securities

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

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

disclaimer copyright © 2005 - 2020