Stocks of most capital goods and engineering companies are likely to take cues from Larsen & Toubro's Jul-Sep earnings on Monday. One of the largest engineering and construction companies in India, L&T is seen posting a robust 17% growth in its net sales in the second quarter of the current financial year due to steady execution of orders. Net profit is also expected to show a modest 11% growth during the same period.
Investors will make a note of the management's comments on sales and order inflow growth target for 2012-13 (Apr-Mar) as it gives a fair idea of how the overall capital goods and engineering industry is faring. In May, L&T had guided for 15-20% growth in order inflows and revenue for the year ending March.
Any downward revision in guidance could hurt market sentiment and drag down some stocks in the capital goods and engineering segment. We expect 2QFY13 (Jul-Sep) revenue growth to moderate to 8% YoY (year-on-year) v/s 17% YoY in 1QFY13 (Apr-Jun), given the depleting order book and constrained environment. Ordering activity continues to be sluggish, particularly in the industrial and power generation segment.
We believe that besides L&T, companies such as Cummins India, Crompton Greaves, and KEC International are likely to do well in the Jul-Sep
quarter due to a large export base, and due to high tendering activity in the transmission and distribution space.
But others such as Bharat Heavy Electricals, BGR Energy Systems, and Siemens may post disappointing set of numbers due to high exposure to power
sector, which is reeling under structural issues such as lack of fuel linkages, land availability, and environmental clearances.
