Capital goods stocks ride on big orders, smart execution

The trend is now being reflected in the robust share performance of these companies, which in turn, has driven the BSE Capital Goods Index to a 52-week high of 35,948.78, which also happens to be its all time high. Strong order flows and healthy execution have also improved revenue and earnings prospects of the companies in Q4 FY23 and for the full year.

KEC International has announced an all-time high order inflow of ₹22,378 crore for FY23, up 30% from a year ago, led by international order inflows for its transmission and distribution vertical. Vimal Kejriwal, managing director and chief executive, KEC International, said the civil business has strengthened its presence with an order in the urban infrastructure segment. “These new orders along with the orders announced earlier this year, reaffirm our confidence in achieving the targeted growth going forward,” he added.

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Kalpataru Power Transmission Ltd too announced new orders of ₹ 3,079 crore in March-April. Manish Mohnot, the company’s managing director and chief executive said orders for the railway and water business have enhanced the order book and improved its market share. Besides, its building and factories vertical continued to grow and diversified into new areas like data centres, education complexes and institutional buildings.

Announcements of large order flows were also made by Larsen and Toubro, Bharat Electronics Ltd and many other firms from various segments such as transmission and distribution, water, hydrocarbon, railways, defence, data centres, digitization and energy efficiency. In the quarter, L&T announced order inflows of ₹20,000-31,500 crore, while T&D EPC firms like KEC and Kalpataru announced robust order inflows worth ₹6,800 and ₹8,120 crore, respectively, according to analysts.

Bharat Electronics has been a key beneficiary of defence orders, securing projects worth ₹1,670 crore.

Going forward, domestic tendering activity is expected to remain healthy for defence, transmission and distribution, water, railways and metro, among others. Healthy ordering inquiries will also continue in key export markets, said Prabhudas Lilladher analysts.

ABB and Siemens too are well placed to benefit from automation solutions, digitization, diversified businesses and exports. Defence suppliers such as Hindustan Aeronautics (HAL), BEL, Bharat Dynamics, Cochin Shipyard, Mazagon Dock and Garden Reach Shipbuilders are also benefitting from the Make in India initiative, and bagging massive defence orders. Improving private capex is likely to sustain order flows, while international queries have been encouraging. Softening commodity prices remains another positive driver for earnings growth.

Capital goods companies had witnessed robust margin growth in Q3, Parikshit Kandpal, institutional research analyst, HDFC Securities, said.Declining logistic costs, easing of supply issues, and improved chip supplies have been beneficial, and further easing of commodity prices could drive better margin performance in the coming quarters, he added.

Despite China easing its zero covid policy, benefits will continue accruing for Indian suppliers, said analysts.