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  1. Lofty GDP data belies slowing activity in capital goods sector

Lofty GDP data belies slowing activity in capital goods sector

Even as data revisions have effectively positioned India as one of the world’s fastest growing economies this fiscal...

By: | New Delhi | Published: February 13, 2015 8:14 AM
GDP data, BHEL, L&T

BHEL and Larsen & Toubro continue to face headwinds. (Reuters)

Even as data revisions have effectively positioned India as one of the world’s fastest growing economies this fiscal, indicators of underlying activity in the economy fail to bear this out.

Bharat Heavy Electricals Ltd (BHEL) and Larsen & Toubro (L&T) — the two flag bearers of the crucial capital goods sector that is widely considered to be a proxy for investment sentiment — continue to face headwinds.

BHEL on Thursday announced a sharp 69 per cent drop in third quarter net profit at Rs 212.6 crore, hit by lower revenue and operating income. L&T, on Monday, had indicated that a recovery in its domestic business was “up to a year away” and had pruned its order book growth target to between 15 and 20 per cent for the fiscal ending March 31, against an earlier target for a 20 per cent rise in new orders.

It was the ninth consecutive quarter the BHEL’s earnings slipped on a yearly basis, with net sales of the state-run firm dropping 28.2 per cent to Rs 6,078 crore during October-December quarter from Rs 8,462.4 crore in the year-ago period, dented by sluggishness in both the power and industry segments.

A senior BHEL official said that capital goods manufacturing being a late-cycle business was expected to see some visible improvement “only after few quarters”. During the second quarter, the equipment firm had flagged another worrying sign of deferred payment from clients, reporting a marginal decline in receivables and that it was targeting a substantial portion out of opening balance.

During the third quarter, the earnings before interest and tax of BHEL’s mainstay power business crashed 62 per cent to Rs 458.7 crore, with margin falling 710 basis points at 9.4 per cent. The company said its outstanding order book was Rs 1,03,900 crore as on December 2014, marginally up from Rs 1,03,700 crore in the second quarter of this fiscal and Rs 1,00,600 crore from the third quarter of 2013-14.

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