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MOSL: Morning India (9/December/19): 1. Capital Goods (Digitalization/Automation + Exports + margin expansion: Strong tailwinds outweigh near term blip in order inflow); 2. NTPC (SCED implementation leading to

MOrning India (9/December/19): 1. Capital Goods (Digitalization/Automation + Exports + margin expansion: Strong tailwinds outweigh near term blip in order inflow); 2. NTPC (SCED implementation leading to savings)

 

Today’s top research idea

Capital Goods: Digitalization/Automation + Exports + margin expansion: Strong tailwinds outweigh near term blip in order inflow

• We remain positive on the digitalization/automation opportunity over the medium term. The current slowdown in order inflow/revenue growth can be attributable to the economic slowdown. Given the short cycle nature of such orders, inflows will bounce back sharply as the economy recovers.
• With the new corporate tax rates in place, MNC engineering companies are well placed to benefit from increasing competitiveness of their Indian entities. Over the past five years as well, exports have witnessed ~10% CAGR, supporting the overall growth.
• A comparison of the segmental margins for the Indian entities versus their global parents suggests ample room for margin expansion, despite taking into account the royalty/technical fees.
• We upgrade ABB to Buy with a TP of INR1,660. The pending demerger of the Power Grid business (likely by Jun'20) has led to valuation correction. We maintain our Buy rating on Siemens as well with a TP of INR1,705. That said, we prefer ABB over Siemens.

Piping hot news

Maruti raises production by 4% in Nov after 9 straight months of output cut

Maruti Suzuki India (MSI) increased its production in November by 4.33 per cent, after having reduced output for nine straight months due to lower demand. The company produced a total of 1,41,834 units in November as against 1,35,946 units in the year-ago month, MSI said in a regulatory filing.