With the Sensex zooming by 233 points on Thursday, some of the gains are likely to percolate to these counters. But once the euphoria wears out, the market is likely to discount the impact of a diesel price hike on the engine manufacturers' bottomline. However, on the other side, a stable government can mean a substantial flow of investments in infrastructure which could make up for the loss of sales on account of diesel price hike.

On Wednesday, two of the engine manufacturers, Wartsila NSD and Cummins India were the major losers in the specified list of Mumbai Stock Exchange (BSE). While the former shed Rs 14.05 to close at Rs 307.95, the latter closed lower by Rs 28.8 at Rs 526.1 from its previous day's close. With its elite peers, Hindustan Powerplus also took a beating by three per cent to Rs 36.25. However, Kirolaskar Engine Oil bucked the trend. The scrip moved up from Rs 42.45 to Rs 44.25. The fortunes of the diesel engine manufacturers are linked to diesel prices as well as the investment in infrastructure, and industrial growth. With the industrial growth picking up and hopes of investment in infrastructure (once a stable government comes at Centre) diesel engines scrips were having a dream run on the bourses. Even their good performances in the first quarter substantiated the theory of industry turnaround.

Cummins India, where Cummins Engine Company Inc, US has an equity stake of 51 per cent, reported a 34 per cent jump in net profits to Rs 17.5 crore in the first quarter. As a result the stock doubled from Rs 364 in beginning of June to Rs 672 on August 30. Wartsila NSD doubled its net profit from Rs 2.3 crore to Rs 4.7 crore in the first quarter of the current fiscal. This rise in the net profit was despite an extra-ordinary provision of Rs 50 lakh. The scrip moved from Rs 266 to Rs 397.5 by end of August. However Hindustan Powerplus ( 37.74 per cent equity stake is held by Caterpillar Inc, US, and an equal stake by the CK Birla group) suffered a major setback in the first quarter. The company reported a net profit of Rs 58.29 lakh as against of Rs 2.04 crore reported in first three months of fiscal 1998. The hopes of industry turnaround was short-lived as uncertainty at centre further delayed clearance of projects. This led scrips of engine manufacturer losing their sheen. However investors were hopeful ofthem touching highs again once a stable government is in place at centre. Unfortunately for them the diesel hike came before the good news.

Diesel engines are the basic power units in equipment used in diverse industries such as textiles, paper, packaging, construction and pharmaceutical. Diesel engine demand is cyclical. Another worrying factor is the industry is characterised by a large proportion of imports in its raw material consumption. With the diesel price hike the inflation which was in the current fiscal ruling at very low levels would zoom. With analysts expecting a petrol price hike soon which would mean a further push to inflation. This will further lead to rupee depreciation in next couple of months. This is likely to put pressure on engine manufacturers bottomline.

Cummins India imports around 43 per cent of its requirements while in case of Wartsila NSD import content is as high as 60 per cent. Hindustan Powerplus imports about 50 per cent of its raw material requirements.

Engines can be broadly categorised into two types - internal combustion (IC) and external combustion. IC engines have a range of applications - agriculture (such as water pumps and compressors for farm equipment), industrial (such as dumpers, excavators, loaders and other earth moving equipment), mining, construction, oil drilling, power generation and marine segments. Based on the horsepower, diesel engines can be broadly classified thus: Small (2-20 HO); medium (20-750 HP) large (750-2,400 HP); and very large (2,400-7,200 HP and higher).