IDFC Securities - Sector update: Capital Goods - Capex cycle weak across parameters

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IDFC Securities

Bhoomika Nair

Sector update: Capital Goods - Capex cycle weak across parameters

CMIE’s capex data shows deepening weakness, as capex cycle remained sluggish across parameters in Q2FY20. New announcements fell to Rs954bn (-59% yoy). The quarterly slowdown in new announcements is broad based across sectors (both public and private), likely led by consumption slowdown and ongoing liquidity crisis. Stalled projects continue to inch up and are now at 12.1% of projects under implementation (11.7% earlier). Projects completed fell 46% yoy to 0.5% of projects under implementation at Rs565bn, largely led by ~78% yoy decline in power generation.

Lead indicators reflected weak end-user demand, with muted growth or decline across MHCV sales, port, power demand, diesel consumption, cement production, etc. The weakness was reflected with most end user prices seeing declining trends. We expect the investment cycle to pickup, once government spend resumes and NBFC liquidity crunch gets resolved. We prefer Crompton Consumer (focus on premium products and cost efficiencies), Engineers India (early beneficiary of hydrocarbon capex) and KEC International (diversified backlog with exposure to power T&D and railway capex).

14/10/2019 9 EN

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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Analysts

Bhoomika Nair

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Sector update: Capital Goods - Capex cycle weak across parameters

GMR Infrastructure's Q3FY20 results (Outperformer) - Air traffic growth improved at the airports; deleveraging process gains momentum

Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

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