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Business News/ Companies / Capital goods firms post mixed results; Bhel, Thermax falter
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Capital goods firms post mixed results; Bhel, Thermax falter

Bhel posts a 64% decline in net profit, its fifth straight drop, while Thermax sees a 67% drop in profit

Analysts believe the bleak situation for capital goods makers will continue in the next quarter. Premium
Analysts believe the bleak situation for capital goods makers will continue in the next quarter.

Mumbai: Capital goods companies reported a mixed set of earnings for the quarter ended 30 September on Wednesday amid delays in project execution and sluggish demand in the country.

Three out of the four companies which reported earnings—Bharat Heavy Electricals Ltd (BHEL), Voltas Ltd and Thermax Ltd—posted a drop in net profit, while ABB India Ltd surprised investors with a surge in profit.

BHEL posted a 64% decline in net profit, its fifth straight drop, as slowing demand trimmed sales. The country’s largest power equipment maker’s net profit fell to 456 crore in the three months ended 30 September from 1,270 crore a year ago.

Analysts had forecast a net profit of 743 crore for BHEL in the September quarter, according to Thomson Reuters data.

Net sales fell 15.2% to 8,819 crore from a year ago and its order book stood at about 1.02 trillion, a company statement said.

Electricity generation businesses in India are reeling under pressure from coal and gas shortages, forcing many companies to operate under capacity, and analysts believe the bleak situation will continue in the next quarter.

“We maintain our neutral recommendation on the stock (Bhel) as we expect tepid order inflow and weak execution to continue for the next few quarters as well," said Amit Patil, an analyst at Angel Broking Ltd.

Thermax posted a 67% drop in net profit for the reporting quarter while revenue fell 13% from a year earlier, which the company attributed to a “sluggish" market for capital goods.

Voltas, the air conditioning and engineering services provider of the Tata group, reported a 1.51% drop in net profit as the company had a one-time gain in the year-earlier period, the company said.

Profit for the corresponding quarter in the previous year had a one-time gain of 14.54 crore. Net profit for the quarter fell to 42.28 crore from 42.93 a year earlier. Net sales fell 7.2% to 1076.53 crore from a year ago.

The order book for the company’s electro-mechanical projects and services segment stood at 4,349 crore from 4,137 crore a year earlier, it said.

Capital goods companies are bearing the brunt of a slowing economy. Factory output data released on 11 October revealed that output in the capital goods segment, which represents investment demand in the economy, contracted 2% in August.

In its World Economic Outlook report released on 8 October, the International Monetary Fund (IMF) forecast India’s economic growth would slow to 4.25% in fiscal 2014. In fiscal 2013, the Indian economy grew at 5%, the slowest in a decade.

On 18 October, Larsen and Toubro Ltd reported a strong growth of 27% in orders over a year ago.

However, L&T’s working capital has continued to increase, said Espirito Santo Securities Pvt. Ltd in a 21 October note.

“We believe this is reflective of a difficult macro-environment, where customer advances are lower, even as the cash collection cycle lengthens," it said. Power and automation technologies maker ABB bucked the trend. It reported a 71% surge in net profit in the September quarter, by cutting costs and streamlining operations.

Net profit increased to 36 crore from 21 crore a year ago. Revenue fell 1.3% to 1,762 crore. Earnings before interest, tax, depreciation and amortization (Ebitda) margin—a measure of profitability—widened to 6.3% from 4.4% in the corresponding quarter of the previous year.

ABB received orders worth 1,762 crore, an increase of 5% from a year ago, while the order backlog stood at 8,252 crore.

Focused initiatives in streamlining operations, optimizing costs and increasing localization are yielding sustainable improvements, the company said.

Managing director Bazmi Husain cautioned that the economic environment in India remains muted and capital expenditure investments continue to be deferred.

“While the renewed momentum in reforms is a welcome measure, the markets are yet to realize its tangible benefits. In the meantime, we continue to pursue new growth opportunities, indiginize our portfolio and innovate to stay ahead," Husain said.

The Bombay high court has sanctioned ABB’s amalgamation with Baldor Electric India Pvt. Ltd, effective from 1 November, the company said. The financial results of the current year reflect the earnings of Baldor, it added.

On Wednesday, shares of ABB gained 2.52% to close at 645.25 on Wednesday on BSE, while the benchmark Sensex lost 0.38% to close at 20,894.94 points. Shares of Thermax gained 0.77% to 628; Voltas lost 2.04% to 91.35; and BHEL lost 1.3% to 140.45.

The BSE Capital Goods Index dropped 0.54% to close at 9153.18 points.

Reuters contributed to this story.

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Published: 06 Nov 2013, 11:10 PM IST
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