The capital goods industry is poised for a robust performance in Q1FY24, as companies gear up with strong order books, continued momentum in execution, a favourable product mix, and increased demand from both domestic and key export markets. A report by PL Universe, expects to witness an impressive overall revenue and adjusted profit after tax (Adj. PAT) growth of approximately 13.6 per cent and 34 per cent year-on-year (YoY), respectively, for Q1FY24. (Excluding BHEL, the expected YoY growth is projected at 13.5 per cent and 25.4 per cent, respectively.)

Key factors to watch during this period include margin guidance, demand outlook, order inquiries pipeline, and effective working capital management. Top picks in the sector include Siemens, L&T, APAR Industries, Carborundum Universal (CUMI), and Bharat Electronics Limited (BEL).

Order inflows point towards strong performance

Order inflows are anticipated to remain strong in Q1FY24, driven by substantial wins announced by prominent companies across various segments such as Transmission and Distribution (T&D), water management, hydrocarbon, railways, defence, data centres, digitalisation, and energy efficiency. Private capital expenditure is also expected to show an uptick during this period.

Among the notable order announcements, L&T's order inflows are estimated to be in the range of Rs 75-175 billion, while T&D EPC companies like KEC and Kalpataru have announced robust order inflows worth approximately Rs 34 billion and Rs 51.2 billion, respectively. BEL has also been a key contributor, announcing orders worth around Rs 81 billion.

Moving forward, sectors such as T&D, railways, data centres, and defence are expected to sustain healthy inquiries and tendering activities from both domestic and key export markets, including the Middle East, the USA, and SAARC countries.

Product and consumable companies display steady growth

Revenue for product and consumables companies is projected to grow by approximately 14 per cent YoY, primarily fuelled by strong volume growth in the domestic market and sustained traction in export markets. Most product companies are expected to witness an expansion in EBITDA margins, supported by favourable product mix and normalisation of freight and commodity costs.

Within this segment, industrial consumables are anticipated to report a YoY growth of around 14 per cent, with CUMI and GWN leading the way with approximately 11.2 per cent and 19 per cent YoY growth, respectively. This growth is attributed to CUMI's strong performance in the ceramics business and continued high demand across key industrial sectors.

EPC Companies expected to record strong revenue growth

EPC companies are projected to achieve a revenue growth of around 13.5 per cent YoY, driven by healthy execution and a solid opening order book. Gradual improvements in EBITDA margins are expected due to an increase in the execution of newer orders amid stable commodity prices.

PL Universe's Top Picks for Investors

Siemens, with its strong and diversified presence across industries, electrification, digitisation, and automation products, remains a positive long-term prospect. The report highlights Siemens' product localisation, robust balance sheet, healthy public and private capex, cost efficiency focus, and recent large order wins in the mobility business. A revenue and PAT compound annual growth rate (CAGR) of 14.2 per cent and 25.8 per cent between SY22-SY25E is expected for Siemens. SBI maintains an 'Accumulate' rating on the stock with a revised target price of Rs 4,018, valuing it at 57 times Sep'25.

L&T, being well-positioned to benefit from diversified tender prospects, is expected to witness better order conversion in the domestic market and significant traction in capex from oil-exporting countries, particularly in the hydrocarbon segment. The company also anticipates an uptick in private capex. SBI forecasts revenue and PAT CAGR of 12 per cent and 18.3 per cent between FY23-FY25E for L&T, with a 'Buy' rating on the stock and a target price of Rs 2,615.

Apar Industries' focus on value-added products and strong traction in exports are likely to drive strong topline and profitability in the long run. SBI predicts a revenue/PAT CAGR of 16.5 per cent/5 per cent from FY23-25E for APR, amid a high PAT base. The stock maintains a 'Buy' rating with a Sum-of-the-Parts (SoTP) based target price of Rs 3,725, valuing Cables/Conductors/Specialty oil business at PE multiples of 25x/21x/9x on FY25E EPS.

Carborundum Universal is expected to benefit from broad-capex across various sectors and improvements in its recently acquired subsidiaries. Strong export performance and new product introductions further augur well for CUMI. The company is projected to achieve a Revenue/PAT CAGR of 16 per cent/28 per cent over FY23-26E. SBI has a 'Buy' rating on the stock with a target price of Rs 1,501, valuing it at 38 times Sep'25E.

Bharat Electronics Limited's long-term growth prospects are based on its strong order backlog and pipeline, diversification into newer business verticals such as medical equipment, hydrogen fuel cells, and EV batteries, along with a focus on export markets. The company is expected to achieve Revenue and PAT CAGR of 16.7 per cent/15.1 per cent between FY23-FY25E. PL has a 'Buy' rating on the stock with a target price of Rs 125, valuing it at a PE multiple of 23x FY25E EPS. While PL remains positive about BEL's growth story, it will revisit its estimates and multiples post-quarterly results in light of the recent rally in stock prices.

*Note: This press release is based on the analysis and projections by PLI's experts and should not be taken as financial advice. Investors are encouraged to do their due diligence and consult with financial professionals before making any investment decisions.*