The Indian engineering sector is geared for growth. Several macro trends indicate accelerated order intake and execution this fiscal and the 2012 fiscal.
The growth will be led by a pick-up in capital expenditure in the power sector. Revenue growth is also seeing a recovery for engineering procurement construction (EPC) companies, after the sluggishness in the first nine months of fiscal 2010.
Experts say that for the quarter-ended June 2010, engineering major L&T sprang a positive surprise on margins and order flow guidance. Fueled by 63% year-on-year growth in order intake of Rs 15,626 crore during the quarter, L&T has an order backlog of Rs 107,800 crore. This provides it an earnings potential for three years. The management has guided for 25% year-on-year increase in order inflow, to end this fiscal with a backlog of Rs 140,000 crore.
?The target is achievable, based on huge ordering planned in roads, power, BTG bulk tender, infrastructure, fertilizer and defense sectors in which L&T has a large market share and superior execution capabilities,? says Chirag Muchhala, an analyst with Jaypee Research.
Another player, Crompton Greaves’ consolidated order intake grew 35% year-on-year in the quarter. Order backlog grew 8% y-o-y to Rs 6,800 crore. Its standalone order intake rose 53% y-o-y. Going ahead, the management is confident of maintaining consolidated margins at 14% for the full year. It has guided growth of 15% in the domestic market and 5% growth in the international markets. Similarly, Pune-based Thermax also reported strong numbers, both in terms of top line and bottom line. Experts say that strong growth in fresh orders last fiscal helped the company grow 49% year-on-year in revenues.
An Edelweiss report said Thermax continued to witness strong traction in orders, with new order growth at 72% year-on-year, to Rs 1,730 crore. This was led by a large order of Rs 580 crore for the combined cycle gas project. Orders from the energy segment stood at Rs 1,530 crore for the quarter. Environment segment orders were at Rs 210 crore.
On longer execution period, as the company takes on large size boilers and EPC contracts, MS Unnikrishnan, MD, company, said: ?We are not taking too many large orders. There is a mix of small and medium orders along with the large orders to mitigate the risk.?
Punj Lloyd disappointed with a sharp decline in turnover, indicating the company may need to consolidate its position further before moving back to the growth path. The company reported its fourth consecutive sales drop in the June quarter to 42%, the the worst so far. The outlook for the company remains uncertain, despite a huge order backlog of more than Rs 25,000 crore, which is equivalent to more than two years of sales.
Weak execution, Forex losses (Rs 22.7 crore) and sustained losses in power system segment led to dismal results for ABB. ABB sales dipped 3% year-on-year and PAT was down 54%. While base orders (especially in automation) remained stable, pricing pressure and delay in finalisation of large orders led to overall muted order intake at Rs 1,230 crore (down 42% year-on-year). Order backlog was at Rs 8530 crore (up 12% year-on-year) due to slower than expected execution result.