[T.S.R:17136] Capital Goods-Orders Flow In, BUY BHEL, CGL (MFG)

PGCIL orders have seen a sharp pick-up in the last few months (Dec-Feb 2011 orders account for

58% of ordering YTD) and we expect the traction in orders to continue into March; competitive intensity remains high across all segments, especially in transmission lines and towers. 

Orders at Rs 82.7bn were down 4% in the period Apr-Feb 2011; transformer orders see the sharpest fall with orders down 72% YoY and substation orders dropping 29% YoY. Transmission line orders saw a jump of 53% and conductor orders are up by 43%. 

Crompton Greaves and BHEL remain our top picks in the sector. 

Orders gain traction over the last few months 

There have been concerns on the street with regard to a slowdown in ordering from PGCIL over the past year. However, there has been a sharp pick-up in ordering over the last 3 months (Dec-Feb 2011 orders account for 

58% of ordering); orders placed by PGCIL between April-Feb 2011 now stand at Rs 82.7bn (down 4% YoY). Transformer orders have seen the sharpest fall with orders being hit on change in pre-qualification norms, in our view. We expect PGCIL orders to pick up further in March, which historically sees the highest amount of ordering. For FY11, we would expect orders to be flat to marginally positive compared to last year's order flow of INR119bn.

Competitive intensity remains high 

There is no let up in competition across segments. Within transformers, the Chinese (TBEA Shenyang and Baoding) have not been able to win any orders in FY11; however, Hyosung increased its share to 27% at the expense of Crompton Greaves. Within substations, the Indian MNCs (ABB, Areva and Siemens) have managed to recapture 50% share (38% share in FY10), which could indicate the first signs of consolidation in this segment. Within transmission lines, KEC International along with Tata Projects, SPIC and EMC garnered 70% of the orders; Jyoti Structures and L&T have not received any orders from PGCIL in FY11. 

Valuation and picks 

The sector has seen a sharp de-rating over the last few months on a slowdown in ordering along with macro concerns on rising commodity prices and interest rates. Resumption in ordering from PGCIL may be the first signs of a reversal in this trend. Our top picks in the sector remain Crompton Greaves and BHEL,

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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