Capital Goods Stocks Outlook: 23-27.07.2012

[rupeedesk]

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

rupe...@googlegroups.com

www.rupeedesk.in