Capital Goods Stocks Outlook: 23-27.07.2012
Stocks capital goods and engineering companies are likely to take cues for
next week from sector major Larsen & Toubro Ltd's Apr-Jun earnings
scheduled to be announced Monday. L&T is seen posting a 9% growth in net
profit and a 16% rise in revenues for the quarter. On Monday, investors
would keenly watch L&T management's comments on any revision in the revenue
and order inflow guidance for the year ending March. In May, L&T had guided
for a 15-20% growth in both order intake and revenue for the year. Markets
will eagerly eye the value of order inflows made during the quarter as the
company had missed its revised guidance of 5% growth in order inflows in
2011-12 (Apr-Mar). Any dent in margins of L&T may also lead
to a slump in stock prices of the company as well as of other capital goods
and infrastructure companies as it would reflect the difficult scenario in
which the industry is operating. Stocks of Crompton Greaves are likely to
decline in early trade Monday as the company posted Apr-Jun net profit at
859 mln rupees, against expectations of 1 bln rupees as operating margins
during the quarter slipped 200 basis points. Meanwhile, the Cabinet
approval to impose import duty on power equipment, which was seen as a
critical reform for power equipment manufacturers till sometime back, is
now being seen as too late a move to make any impact, dashing all hopes of
an upside in stocks of Thermax, L&T, Bharat Heavy Electricals Ltd, and BGR
Energy Systems.
An imposition of this duty before the massive order out
to foreigners could have been a huge positive for the industry. However, a
huge increase in domestic capacity and the demand slowdown mean that even
cutting foreigners out totally, which this duty still doesn't do, would
still enable local players including BHEL to operate at only 40-50%
capacity utilisation on a best-case basis for the foreseeable future.
By RUPEE DESK [email protected] www.rupeedesk.in
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