MOSL: Morning India (27/March/18): 1. Capital Goods (Thematic): Industrial capex – On recovery path; 2. KNR Constructions; 3. Automobiles (March volume estimates)
MOrning India (27/March/18): 1. Capital Goods (Thematic): Industrial capex – On recovery path; 2. KNR Constructions; 3. Automobiles (March volume estimates)
Today’s top research theme
Capital Goods (Thematic): Industrial capex – On recovery path; Oil & Gas, Steel and Cement capex to drive revival over FY17-21
- Post a decline in the period FY12-17, green shoots of recovery are visible in industrial capex; we expect a recovery during FY17-21e, driven by a revival in Oil & Gas, Cement and Steel capex. Capex in the O&G space is being driven by the BS VI emission norm related upgrades (INR300b spend), brownfield/greenfield refinery expansions by various PSU oil marketing companies and revival of five fertilizer units(FY17-21E capex CAGR growth of 8%).
- Cement sector capex primarily in East India; Waster Heat Recovery Generators (WHRG) also being deployed (FY17-21E capex CAGR growth of 9%). Within the steel sector, rising commodity prices along with import tariffs has led to metal companies announcing capacity additions (FY17-21E capex CAGR growth of 7%) – TATA Steel and JSW Steel are the front runners.
- Consumer oriented sectors (Auto, FMCG, Consumer durables) capex growth to remain steady during FY17-21e; pharma declines on sector head winds. Our top picks to play the industrial capex recovery are Engineers India (BUY, TP:INR200), Thermax (BUY, TP:INR1350), L&T(BUY, INR1670) and Cummins India(BUY, TP:INR1040)
Piping hot news
H1FY19 Gross Market Borrowing: Govt fixes target at Rs 2.88 lakh crore
- The Union government will borrow just 47.5% of its budgeted full-year target (gross) through bonds in the first half of 2018-19 — much lower than the 60-65% in the corresponding period over the previous five years — and take more from the National Small Savings Fund (NSSF) to finance the fiscal deficit as it seeks to ease pressure on the bond market that has witnessed a spurt in yield in recent months.
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