IDFC Securities - Sector update: Capital Goods - New project announcements tepid; lead indicators firm

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IDFC Securities

Bhoomika Nair

Sector update: Capital Goods - New project announcements tepid; lead indicators firm

Our analysis of CMIE data shows sustained weakness in new project announcements at Rs1.6trn in Q1FY19, below the quarterly average mark of Rs2trn. While manufacturing saw +44% yoy increase in the quarter, supported by Rashtriya Ispat Nigam Ltd’s (RINL) steel project (Rs300bn), transportation (plane acquisition, roads, etc) continued to drive new announcements. While a 4% yoy decline in projects stalled was the silver lining, the same remained elevated at 11% of projects under implementation. Similarly, projects under implementation rose 2% yoy, led by the transport segment (up +6.6% yoy).

Boosted by revival in demand and low base, most lead indicators improved, causing prices of end products (except aluminium & copper) to firm up. However, we expect domestic capex to recover gradually, impacted by near term disruptions from hike in crude prices, rupee depreciation and forthcoming national elections. As a result, we prefer Voltas (structural AC industry growth), Engineers India (play on hydrocarbon capex revival) and KEC Intl (beneficiary of power T&D and railway capex).

09/10/2018 10 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 - New project announcements tepid; lead indicators firm

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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