Capital goods - Margin pressure and high interest costs remain a drag on profitability - Angel Broking

We expect the companies in our capital goods universe to post a decline of 2.3% yoy in revenues. However, excluding the performance of Bharat Heavy Electricals (BHEL), our coverage capital goods companies are expected to report a moderate revenue growth of 7.2% yoy. BHEL's top-line is likely to be impacted due to execution delays on account of delay in payments by clients as well as delay in obtaining the necessary clearances.

Overall on the bottom-line front, we expect our capital goods universe to report a steep contraction of 23.9% yoy as most of the companies are expected to witness continued margin pressure due to tough competition in the sector. Furthermore, interest costs remain at elevated levels for many companies in our capital goods universe as execution delays (due to delay in clearances and deferral in payment by clients) and decline in advances (due to subdued order inflow) have led to deterioration of working capital, which is being funded by short-term borrowings.

Source : Equity Bulls

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