Capital Goods Q3FY19 Result Preview - Strong execution with large H1 backlog to drive sales

We expect sales growth to be driven by robust execution of high backlog at the beginning of the quarter.

Jan 17, 2019 10:01 IST India Infoline News Service

We expect healthy top-line growth for engineering and capital goods companies in Q3FY19, driven by pick-up in execution amid strong order backlog. However, large order inflows to be muted after front-loading of projects in H1 ahead of 2019 general elections. The sector is likely to witness short-cycle small / mid-size orders, while large orders may remain absent or concentrated in select categories only. Export orders are expected to witness moderate-to-stable growth in select categories. However, strong inflow in H1 has reduced pre-election related uncertainty for order inflows. We expect execution momentum to remain strong in Q3FY19 riding on robust order backlog already front-ended ahead of state elections held towards the end of 2018. Consequently, margins are expected to remain healthy with stable profitability parameters. Management’s commentary on recovery in private capex including announcement of new investments will be key monitorable during the quarter. Among the key players, we are bullish on L&T, Siemens, Cummins and Bharat Electronics.

Q3FY19 Results Estimates

In Rs cr Change %
L&T Q3FY19 yoy qoq
Sales 33,923 18.0 5.7
EBITDA 3,529 12.2 -6.4
EBITDA Margin (%) 10.4 (53)bps (135)bps
PAT 1,868 24.2 (3.5)

• We expect revenue for Q3FY19 to grow 18% yoy, driven by pick in execution mainly in infrastructure segment further supported by hydrocarbon business.
• However, despite strong sales, margins might remain muted. Working capital and order inflows will be key monitorables.

In Rs cr Change %
Siemens India* Q1FY19 yoy qoq
Sales 3,230 32.9 -18.0
EBITDA 362 32.8 -13.6
EBITDA Margin (%) 11.2 (1)bps (57)bps
PAT 209 9.6 -25.2
*Quarter ending Dec ’18 indicates 1QFY19

• We expect strong top-line growth on yoy basis, mainly led by momentum in energy segment coupled with traction in digitalization drive. 
• Order book expansion will be one of the key things to be watched.

In Rs cr Change %
Bharat Electronics Q3FY19 yoy qoq
Sales 2,910 15.8 -13.9
EBITDA 537 20.6 -37.2
EBITDA Margin (%) 18.4 73 (6.82)
PAT 338 11.6 -40.9

• We expect a healthy yoy growth in the top-line for the quarter led by EVM / VVPAT execution ahead of general election.
• EBITDA margin to remain healthy with marginal expansion on yoy basis.

In Rs cr Change %
Cummins Q3FY19 yoy qoq
Sales 1,398 3.2 -6.0
EBITDA 191 -3.1 -24.0
EBITDA Margin (%) 13.6 (88) (324)
PAT 177 3.0 -16.2

• We expect growth will highly be dependent upon traction in high-end real estate and performance in HHP power-gen business.
• Traction in key end-user markets in Africa and Middle East, and new product lines in exports will be a key monitorable.

In Rs cr Change %
ABB India* Q4CY18 yoy qoq
Sales 2,910 4.7 15.7
EBITDA 296 0.9 52.7
EBITDA Margin (%) 10.2 (39) (247)
PAT 177 3.2 63.4
*Quarter ending Dec ’18 indicates Q4CY18

• High base effect may weigh on ABB’s yoy top-line growth despite HVDC execution.
• EBITDA margin may be muted due to commodity price pressure coupled with lower sales growth.

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