Analysis
Capital goods cos meet Oct-Dec PAT view, trail revenue estimates
This story was originally published at 11:56 IST on 25 February 2025
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By Rajesh Gajra
NEW DELHI – The disaggregated set of 17 capital goods companies that are part of the Nifty 200 have neither pleased nor disappointed analysts with their earnings for the December quarter. The on-year net profit growth perfectly matched analysts' expectations, as these companies reported an aggregate net profit growth of 10.9%, the same that analysts had expected for the sector.
These companies, however, reported lower revenue growth of 17.8% on an aggregate level compared to analysts' estimate of 19.5% growth for the sector. At an aggregate level, the sector outperformed the aggregate net profit and revenue growth of Nifty 200 companies.
Vis-a-vis the sectoral aggregate net profit growth estimate of 10.9%, nine companies reported higher net profit increases and eight companies underperformed. Compared to the aggregate revenue growth estimate of 19.5%, the score was the same -- nine companies reporting higher growth rate and eight trailing the analysts' aggregate estimate.
At an individual level, of the 17 companies, only six beat analysts' estimates of their respective net profit growth and 11 companies underperformed. In terms of revenue growth, eight companies met the Street's view and nine companies were underperformers.
There was disappointment in the performance of the gigantic Larsen & Toubro Ltd., which, on its consolidated revenue, accounts for around half the aggregate of revenue of these 17 companies. L&T missed analysts' estimate of its net profit by a wide margin and the consolidated revenue reported was also lower than the estimate.
Analysts had expected mixed execution in unfavourable conditions on account of moderation in government capital expenditure spends on sectors such as water, road, and railways. While this did pan out in the December quarter and reined in the execution performance of many capital goods companies, for a few of them, including L&T, the order inflow continued to be strong amid average execution rates of orders from previous quarters.
Only six companies beat the Street's view on both their top line and net profit – these were Mazagon Dock Shipbuilders Ltd., Hindustan Aeronautics Ltd., Cummins India Ltd., Bharat Electronics Ltd., ABB India Ltd., and APL Apollo Tubes Ltd. On the other hand, nine companies reported revenue and bottom line numbers that were lower than analysts' estimates. These were Astral Ltd., Bharat Dynamics Ltd., Cochin Shipyard Ltd., Container Corp. of India Ltd., L&T, Polycab India Ltd., Rail Vikas Nigam Ltd., Siemens Ltd., and Supreme Industries Ltd. Both the remaining companies - Bharat Heavy Electricals Ltd. and CG Power and Industrial Solutions Ltd. - missed analysts' estimates on net profit growth and met the revenue growth estimates.
The consolidated revenue of L&T rose 17.3% on year to INR 646.7 billion in the December quarter and missed the Street's view of 19.5% growth. The bottom line of the largest engineering, procurement, and construction, company in the country was up 14.0% on year at INR 33.6 billion, disappointing analysts, who had estimated a 24.6% jump. L&T accounts for 52% of aggregate revenue of the sector and 31% of the aggregate net profit.
TOP LINE MIX
Five of the 17 companies clocked strong 30%-plus revenue growth. Barring Bharat Dynamics, which saw revenue growth of 38% on year but missed analysts' estimate of 60% revenue growth, the revenue of the other four companies rose more than 30% on year and surpassed the Street view of below 30% revenue growth for each of them.
Bharat Electronics reported revenue of INR 57.56 billion, up 39% on year. It beat analysts' estimate of 18% on-year growth on the back of defence orders emanating from the government's push on indigenisation. Execution of defence-related orders accounts for around 90% of the revenue of Bharat Electronics, and the surge in revenue in the December quarter was not anticipated by analysts. But analysts see 30%-plus revenue growth rate as difficult to sustain, given the fact that the order book at the end of December was INR 711.0 billion, lower than the year-ago level of INR 762.2 billion.
A similar scenario played out in the case of Mazagon Dock, whose revenue jumped 33% on year, surpassing the Street's view of 21% revenue growth. The company had recorded a 51% on-year surge in revenue in the September quarter and a 49% jump in the March quarter.
Mazagon Dock builds ships and ship-related infrastructure for both the public and private sectors, and submarines for the navy, and is predominantly dependent on government and public sector orders. Accelerated order execution led to higher-than-expected revenue growth, but the end-of-December order book of INR 347.9 billion was lower than INR 383.9 billion a year ago.
BHEL beat the Street view of 27% year-on-year growth by recording a jump of 32% in revenue on the back of strong execution across the power and industry segments. Unlike Bharat Electronics and Mazagon Dock, BHEL's outstanding order book of INR 1.602 trillion at the end of December was up sharply from INR 1.086 trillion a year ago.
Siemens and Rail Vikas Nigam reported a fall in revenue in the December quarter, something analysts had not anticipated. Container Corp. recorded near-flat revenue growth, disappointing analysts, who had estimated high single-digit growth.
Siemens' revenue from operations declined 4.4% on year, against analysts' expectation of a 65% jump in revenue. It was also the worst revenue growth performance by the company in 17 quarters. In an earnings press release, Siemens said that the revenue was hit by "the normalisation of demand in the company's digital industries business", and "a slowdown in the private sector capex spending".
Rail Vikas recorded a 1.8% on-year decline, against the Street view of a 2.3% increase. Brokerage IDBI Capital Market Services said in a review report that Rail Vikas was hit by weak execution rate and slower government capex spending in the railways sector. The company also guided for flat revenue for 2024-25 (Apr-Mar).
PROFIT CONCENTRATION
Even as the 17 capital goods companies met the Street's expectations on net profit, the actual outperformance in terms of company-level estimates was not widespread. Only six companies – APL Apollo Tubes, ABB India, Bharat Electronics, Cummins India, Hindustan Aeronautics, and Mazagon Dock – exceeded analysts' estimates of net profit.
The biggest pull in net profit came from Hindustan Aeronautics, in which the government owns 71.6%. Analysts were expecting the company's net profit to rise 5.7% on year and revenue to increase 7.5% in the December quarter. But the company reported a 14% increase on year in net profit on the back of a 15% rise in revenue.
Even though the 14% on-year rise in Hindustan Aeronautics' net profit was above market expectations, it was lower than the growth in the preceding three quarters. Analysts had predicted delays in project deliveries due to supply disruptions, but the top line growth reported by the company did not reflect this. A jump of 37% in other income and a marginal 0.3?cline in employee costs aided the growth in its net profit.
The net profit of Bharat Electronics surged 47% on year, higher than the Street's view of a 7% increase. This was primarily due to a 39% jump in revenue and partly due to a 41% drop in consumption of stock-in-trade expense and moderate increases in staff costs and depreciation and amortisation expense.
The bottom line growth of APL Apollo Tubes also pulled up the sector's performance vis-a-vis the Street's view. The company's consolidated net profit rose 31% on year, against analysts' estimate of 27% growth. The net profit growth came on the back of stronger-than-expected revenue growth of 30%. Analysts had forecast a 22% rise in revenue. Moderate increases in depreciation and amortisation expense and tax outgo also aided the net profit growth of the company.
Eleven capital goods companies missed analysts' company-level estimates for net profit. Of these, three saw their net profit decline more than estimated. Rail Vikas was the worst performer with a 10?ll in net profit, against analysts' estimate of 6% growth. Supreme Industries recorded a 27?ll year-on-year in net profit, against analysts' expectation of a 5?cline. This was mainly due to a lower-than-expected increase of 2.5% in revenue. Analysts had estimated the revenue of the company to rise 11%. Cochin Shipyard also saw its net profit decline more than analysts' estimate, though the difference was not substantial. The remaining seven companies saw a rise in net profit, but at a rate lower than the Street had expected.
CG Power and Industrial Solutions reported lower revenue than analysts' estimate of 11%, but the difference was not substantial.
L&T's lower-than-expected 14% increase in consolidated net profit dragged down the performance of the sector. Had it met analysts' expectation of 24.6% growth, the net profit would have grown to INR 36.7 billion and this would have taken the aggregate net profit growth for the sector to 14.1% on year, against the Street's expectation of 10.9% growth.
L&T said, "The primary reason behind group PAT (profit after tax) growth of 14?spite group revenues growing at 17% for the quarter (Oct-Dec) is the lower operating leverage in the IT&TS (information technology and telecommunications) portfolio and slightly higher credit costs in our financial services business."
The following table shows the performance of the 17 companies in the capital goods sector vis-a-vis the consensus estimate for each company, as well as against the consensus estimate for the capital goods sector and the Nifty 200 index:
| Company | PAT beat analysts' estimate | Adjusted PAT growth % | Adjusted PAT growth estimate % |
PAT beat sector estimate | PAT beat Nifty 200 estimate | Revenue beat analysts' estimate | Revenue growth % | Revenue growth estimate % |
Revenue beat sector estimate | Revenue beat Nifty 200 estimate |
| Capital goods sector | 10.9 | 10.9 | 17.8 | 19.5 | ||||||
| Nifty 200 | 8.8 | 10.0 | 5.5 | 4.0 | ||||||
| APL Apollo Tubes | Yes | 31.1 | 22.4 | Yes | Yes | Yes | 30 | 26.6 | Yes | Yes |
| ABB India | Yes | 56.0 | 35.0 | Yes | Yes | Yes | 22 | 14.3 | Yes | Yes |
| Astral | No | 0.5 | 11.2 | No | No | No | 2 | 9 | No | No |
| Bharat Dynamics | No | 9.0 | 112.4 | No | No | No | 38.3 | 59.7 | Yes | Yes |
| Bharat Electronics | Yes | 47.3 | 7.1 | Yes | Yes | Yes | 39.1 | 18.4 | Yes | Yes |
| Bharat Heavy Electricals | No | 169.4 | 355.0 | Yes | Yes | Yes | 32.2 | 26.9 | Yes | Yes |
| CG Power and Industrial Solutions | No | -67.8 | -65.8 | No | No | Yes | 27.1 | 23.2 | Yes | Yes |
| Cochin Shipyard | No | -25.7 | -21.0 | No | No | No | 4.7 | 17.5 | No | Yes |
| Container Corp. of India | No | 2.7 | 3.3 | No | No | No | -0.1 | 6.2 | No | No |
| Cummins India | Yes | 12.6 | 4.7 | Yes | Yes | Yes | 21.8 | 6.2 | Yes | Yes |
| Hindustan Aeronautics | Yes | 14.3 | 5.7 | Yes | Yes | Yes | 14.8 | 7.5 | No | Yes |
| Larsen & Toubro | No | 14.0 | 24.6 | Yes | Yes | No | 17.3 | 19.5 | No | Yes |
| Mazagon Dock Shipbuilders | Yes | 28.8 | 6.7 | Yes | Yes | Yes | 33.1 | 21 | Yes | Yes |
| Polycab India | No | 10.8 | 11.1 | No | Yes | No | 20.4 | 23.5 | Yes | Yes |
| Rail Vikas Nigam | No | -9.5 | 6.0 | No | No | No | -1.8 | 2.3 | No | No |
| Siemens | No | 21.4 | 30.3 | Yes | Yes | No | -4.4 | 65.3 | No | No |
| Supreme Industries | No | -27.0 | -5.0 | No | No | No | 2.5 | 11 | No | No |
The following table shows the profit margins of the capital goods companies that are part of the Nifty 200:
| Company | Adjusted PAT Margin for Dec-24 | Adjusted PAT Margin for Dec-23 | Adjusted PAT Margin for Sept-24 |
| Capital goods sector | 8.8% | 9.3% | 8.9% |
| Nifty 200 | 11.9% | 11.5% | 11.4% |
| APL Apollo Tubes | 4.0% | 4.0% | 1.1% |
| ABB India | 15.7% | 12.3% | 15.1% |
| Astral | 8.2% | 8.3% | 8.0% |
| Bharat Dynamics | 17.7% | 22.4% | 22.5% |
| Bharat Electronics | 22.9% | 21.6% | 23.8% |
| Bharat Heavy Electricals | 1.7% | 0.8% | 1.5% |
| CG Power and Industrial Solutions | 9.6% | 37.8% | 9.2% |
| Cochin Shipyard | 17.2% | 24.3% | 17.6% |
| Container Corp. of India | 15.6% | 15.2% | 17.7% |
| Cummins India | 16.7% | 18.0% | 18.1% |
| Hindustan Aeronautics | 20.6% | 20.7% | 24.8% |
| Larsen & Toubro | 5.2% | 5.3% | 5.5% |
| Mazagon Dock Shipbuilders | 25.7% | 26.5% | 21.2% |
| Polycab India | 8.8% | 9.5% | 8.0% |
| Rail Vikas Nigam | 6.4% | 7.0% | 6.2% |
| Siemens | 17.7% | 14.0% | 19.5% |
| Supreme Industries | 7.4% | 10.5% | 9.1% |
End
Edited by Avishek Dutta
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