Sector update: Engineering - Capex – FY18 weakest in over a decade
Our analysis of CMIE data shows 53% yoy fall in new project announcements to Rs1.95trn in Q4FY18 but +65% qoq improvement as GST issues receded. New project announcements were the weakest in over a decade at Rs6.6trn (-52% yoy) in FY18. During the quarter, share of announcements by private entities increased to 67%, highest since 2010, led by Reliance Jio’s plant in Andhra Pradesh. Project completions saw a sharp 57% yoy fall to Rs850bn, while projects stalled (-1% yoy) remained elevated at 11% of projects under implementation. Projects under implementation rose 1% yoy, led by transport segment (+33% yoy), which grew across sub segments.
All lead indicators improved in Jan/Feb 2018 boosted by revival in demand and a low base. Prices of end products exhibited mixed trends. While prices of steel and polymer products rose, cement and aluminum saw a decline. With GST transition related issues largely behind, we expect a gradual recovery in domestic capex going forward. We thus prefer Voltas (structural AC industry growth), Engineers India (play on hydrocarbon capex revival) and Bharat Electronics (defence capex beneficiary).
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