IDFC Securities - Sector update: Capital Goods - Capex data reflects delays in investment cycle recovery

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IDFC Securities

Bhoomika Nair

Sector update: Capital Goods - Capex data reflects delays in investment cycle recovery

Analysis of CMIE’s capex data reflects yet another weak year, with FY19 seeing sustained sluggishness in the capex cycle. New announcements fell for the 4^th consecutive year to Rs9.5trn (-17% yoy), a 14-year low, with Q4FY19 having closed at ~Rs1.99trn (-54% yoy). The quarterly slowdown in new announcements is across sectors, also both public and private, indicating uncertainty in view of upcoming national elections. Stalled projects too inched up to 11% of projects under implementation (versus 10% earlier), largely led by the private sector. On a positive note, projects under completion rose 16% yoy, picking up to 1.8% of projects under implementation, largely led by infra projects (road, rail, metros, etc).

Lead indicators reflected weak end user demand, with muted growth/decline across MHCV, port and rail volumes and thin power demand. The weakness was reflected with most end user prices seeing declining trends. Investment cycle recovery may see delays on forthcoming national elections and liquidity crunch. We prefer EIL (revival in hydrocarbon capex) and KEC Intl (power T&D and railway capex beneficiary).

08/04/2019 1 EN

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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 data reflects delays in investment cycle recovery

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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