No upturn in capex cycle as order books stay small
Disappointing numbers from industry heavyweights Bharat Heavy Electricals (BHEL) and JSW Steel and lacklustre results from core sector players like Grasim, Sesa Goa, Crompton Greaves, Adani Power and Container Corporation suggest the economy may be far from bottoming out. Engineering firm BHEL reported a 17.5% fall in net profit on a yearly basis in the three months to December, Grasim’s bottom line dipped 18% year-on-year while both Adani Power and Crompton Greaves reported losses. Dwindling orders are hurting top lines — BHEL’s sales dipped 5% — while a difficult regulatory environment is taking a toll on miners like Sesa Goa.
Clearly, the demand for industrial goods isn’t picking up meaningfully — Larsen & Toubro’s muted 10% y-o-y top line growth suggests a loss in momentum given that the company’s revenues had risen 21% y-o-y in the first half of the year. Going by the order books at engineering firms, the capex cycle doesn’t seem to have turned yet; BHEL’s order backlog contracted sequentially to R1.1 lakh crore at the end of December, from R1.22 lakh crore at the end of September and R1.33 lakh crore at the end of June. In a recent note, JPMorgan highlighted that BHEL’s book/billings ratio had dropped to 2.4 times from 4.3 times two years back. Order inflows at Siemens fell 31% y-o-y, resulting in a further contraction in the backlog. The MNC reported flat sales with the net profit of R73 crore missing estimates by 50%. Order inflows at Crompton Greaves have grown just
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