Government orders might continue saving capital goods companies

In the last fiscal, government orders drove majority of capital goods and engineering companies, and looks like the trend is going to stay for this fiscal as well. A look at the order pipeline, and one can only see the names of state-funded schemes amidst a few private sector projects here and there.

Companies like Larsen & Toubro, ABB and Siemens are looking at more government projects than ever, given that private sector is still unsure about investments.

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"Order flows continue to be dominated by public sector capex, led by sectors like power transmission & distribution, railways, metros and hydrocarbons," HDFC Securities said in a pre-earnings report. "Orders from Power Grid grew 112% year-on-year to Rs 8,020 crore in Q4 FY17. Power generation orders continued to be muted, with no major orders announced by BHEL."

The worth of order inflows by major capital goods companies, excluding L&T, declined one fifth to stand at Rs 16,500 crore in the fourth quarter from a year earlier, says Elara Capital. Amongst these orders, a large number were from railways, transmission & distribution, renewables & water treatment.

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"We expect that domestic capital goods sector would continue to be impacted primarily due to slower execution, lower order inflow and poor financial health of the power distribution companies. We believe announcement of Uday scheme for discoms is positive, which is likely to result in better cash flows and new investments in state T&D networks and independent power producers," Reliance Securities said.

The Uday scheme has been announced to revive state-owned power distribution companies that are ridden with debts.

(Image source LiveMint)