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ICICI Securities Report
For our capital goods coverage universe, we expect revenue growth momentum to continue in Q4 FY23 for both engineering, procurement and construction and product companies, led by robust order backlog, improving supply chain and hence overall pick-up in execution.
We expect margin improvement would be restricted due to hardening of select commodity prices especially steel. Net working capital is likely to be stable or may see some improvement QoQ on the back of pickup in execution and lower inventory levels.
Order intake for our coverage universe is expected to be flat on account of large base in Q4 FY22. Excluding Larsen and Toubro Ltd., order inflow is expected to grow 21% YoY.
During the quarter, we saw pickup in the domestic transmission orders with Power Grid Corporation of India Ltd. receiving eight projects on tariff-based competitive bidding basis, Vande Bharat (200 train sets), hydrocarbon and thermal power plant awarding.
We expect the momentum to continue going ahead, on the back of government thrust on infrastructure development, increase in private capex, and continued demand in new-edge sectors – such as data centre, metro, hydrogen, electric vehicle, digitalisation, energy efficiency, etc.
We factor in revenue growth of 12% YoY (excluding L&T: 15% YoY) in Q4 FY23E for our coverage universe, given the steady execution pace. We forecast Ebitda/profit after tax growth at 15%/12% YoY, respectively.
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