Capital goods companies see muted growth in orders, revenue

Capital goods sector continues to show stress with no visible uptick in key manufacturing and infrastructure sectors.

Order intake and sales has remained weak in March-end quarter results but profitability of companies in the space has improved because of cost saving measures and lower raw material and fuel costs.

Data from Capitaline shows that the combined revenue of capital goods companies which have declared results so far has grown by 1.8 percent compared to same quarter last year. Profit before interest depreciation and tax is up 6.1 percent and adjusted net profit is up 14.1 percent.

Amongst the major companies ABB and Siemens witnessed negative ( - 6.3 percent ) and flat order intake ( 1.8 percent) respectively in March-end quarter while sales growth too has remained weak. But margins of both companies improved because of lower raw material costs and cost saving steps.

Alstom's T&D's fourth quarter order intake declined on a y-o-y basis but full year's order intake grew 36 percent because of a large high voltage direct current transmission line order. Greaves Cotton too reported a decline in revenue because of flat growth in engine segment and closure of construction equipment business. But margins improved on closure of construction equipment business.

While ABB and Siemens remain confident of a revival in the sector due to expected government spending in infrastructure particularly railways, smart cities and renewable energy, fourth quarter results have an overhang of slow recovery."Order flow in capital goods sector is linked to revival of project capital expenditure. Unless issues pertaining to stalled projects are sorted fresh investments would be limited. Moreover capacities in key sectors are in far excess of demand. There are a few positive factors though.

Public sector undertakings like NTPC insist that bidders must have domestic manufacturing capabilities. Also In transmission and distribution we have seen good orders by Power Grid. These have been alleviating he problems to an extent but we expect a broad based revival not before second half of the current fiscal," said Anjan Ghosh, executive vice president, ICRA, a credit rating agency.Analysts point out that capacity utilization in key industries (power, cement and steel) remains below 70 percent. As a consequence private sector is not planning expansion. " Essentially it is not liquidity that is impacting the pace of order inflows but lack of demand from end user," Kotak Institutional Equities said in its post results note on ABB India.

In a post result interaction with analysts Alstom T& D's managing director Rathin Basu said fiscal 2015-16 is expected be equally challenging like last fiscal. Outlook for fresh ordering also remains flat.

While Alstom is upbeat on Power Grid, NTPC and state generation and transmission utilities, the outlook on private sector investment in power remains tepid due to high non performing assets especially amongst independent power producers and reluctance of banks to extend funding.