Capital Goods Q2 Results Preview - Healthy Outlook; Margin Revival Visible: Prabhudas Lilladher

Prabhudas Lilladher Report

We expect our capital goods coverage universe to report healthy performance in Q2 FY24 owing to -

1. strong opening order books,

2. continued execution momentum,

3. favorable product mix and

4. better demand/orders/volumes from domestic as well as key export markets such as Middle East, Americas, SAARC, Africa etc.

Overall, we expect revenue/adjusted profit after tax growth of ~16.8%/26.5% YoY (15.4%/33.7% YoY excluding-Larsen and Toubro Ltd.).

Key monitorables would be margin guidance, demand outlook, order/ inquiries pipeline and working capital management.

Our top picks-

Siemens - We remain positive on Siemens Ltd. from a long-term perspective given-

1. its strong and diversified presence across industries through focus on electrification, digitisation and automation products,

2. product localisation,

3. strong balance sheet,

4. healthy public and private capex and

5. focus on cost.

Considering healthy public and private demand outlook plus focus on cost efficiencies we expect revenue/profit after tax compound annual growth rate of 14.2%/ 25.9% between SY22-SY25E.

We have ‘Accumulate’ rating on the stock with target price of Rs 4,241, valuing it at 60 times September-25.

L&T - Larsen Toubro Ltd. is well-placed to benefit from overall diversified tender prospects with-

1. better order conversion in domestic market,

2. significant traction in capex from oil exporting countries, mainly hydrocarbon segment and

3. expected uptick in private capex.

We expect L&T to report revenue and profit after tax CAGR of 12.8% and 20.6% between FY23-FY25E.

We have ‘Buy’ rating on stock with target price of Rs 3,302.

Apar Industries - We believe Apar Industries Ltd.'s focus towards value added products and strong traction in exports business will drive strong topline and profitability in the long run.

Hence we expect revenue/profit after tax CAGR of 15.1%/12.1% from FY23-26E.

We have ‘Accumulate’ rating on stock with SoTP based target price of Rs 5,499 valuing cables/conductors/speciality oil business at price-to-earning of 32 times/25 times/12 times on Sep-25E EPS.

ABB India - We remain positive on ABB India Ltd. given-

1. increasing traction for energy efficient products,

2. changing customer preference towards value added products,

3. diversified business model,

4. focus on high growth segments (electronics, data center etc.),

5. strong order pipeline,

6. organic/inorganic growth.

We expect revenue/profit after tax CAGR of 19.8%/26.5% from CY22-25E. We have ‘Accumulate’ rating on stock with target price of Rs 5,013 valuing it at price-to-earning of 68 times CY25E.

BEL - We remain positive on long-term growth story of Bharat Electronics Ltd. given-

1. strong order backlog and order pipeline,

2. diversification in newer business verticals like, medical equipment’s, hydrogen fuel cell, electric vehicle batteries etc.,

3. focus on export markets (Egypt, Malaysia etc.) and

4. government's focus on product indigenisation.

We expect revenue and profit after tax CAGR of 16.7%/16.2% between FY23-FY25E.

We have ‘Accumulate’ rating on stock with target price of Rs 140, valuing at PE of 25 times FY25E EPS.

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