Engineering and capital goods companies continue to feel the pinch of the economic slowdown and weak industrial capex with order inflows still sluggish. While most companies demonstrated healthy operational performance, leading to a rebound in net sales and profit growth, analysts expect the tough macro environment to continue to cast a cloud on the order-book growth even in 2012-13.

?The order-book-to-build (or sales) ratio for most of the engineering majors, including ABB, Siemens and L&T currently range in the span of 1-3 years, which is expected to drive the growth of these companies. However, if the order ramp-up does not happen in the next two quarters, some of the stocks may see further derating as analysts start factoring in the earnings expectations for 2013-14,? said an analyst tracking these companies.

Deferrals affected the order inflows of engineering companies even in the March quarter. L&T saw its 2011-12 order inflow shrink by 12% against an expected 5% growth. ABB reported a 4% decline in its March-quarter order inflow, while Siemens saw a 36% y-o-y decline in the last two quarters.

L&T has guided for a strong 15-20% growth in its FY13 order inflows. However, analysts believe that it may be difficult for the company to meet its guidance, given the tough macro environment.

The company failed to meet its inflow estimates of 5% for FY12, which it had revised from an earlier guidance of 15-20%. ?A significant portion of this expected inflow could be the spillovers of the expected orders in FY12 orders, which were not received,? said an analyst.

According to the analyst, engineering companies would continue to face challenges regarding new orders, given the structural issues in the power sector and weak capex spending in the industrial project segment. ?High interest costs and uncertainty in the economy are resulting in sustained deferral of orders by clients, especially in the industrial projects segment,? he added. Analysts, in general, appear to see a tough business environment for the capital goods space. Except for L&T, some of the leading stocks from the space bear less than 15% ‘buy’ recommendations, according to Bloomberg.

For the year so far, the BSE capital goods index has clocked in gains of 13%, with the recent rally in the L&T stocks contributing a gain of 3%.

The index was one of the leading gainers till February, as many stocks from the sector rebounded strongly after being the worst-performers of 2011. Till mid-March, their gains were also fuelled by the expectations of interest rate cuts by the RBI. L&T and ABB continue to be the front-runners from the sector, having yielded more than 20% for the year so far, against a 6% year to date return given by the Sensex.