Source: The Hindu Business Line, Sept 18, 2016
The recently declared industrial production numbers paint a gloomy picture with factory output for the April to July period contracting by 0.2 per cent over the corresponding period of the previous year.While the overall output in the capital goods segment, as depicted by the capital goods IIP, was also sharply lower, the machinery and equipment manufacturing segment managed to record year-on-year growth of 9 per cent in the first four months of this fiscal year.
In addition, an analysis of the revenue and earnings of the 180-odd capital goods companies over the last four quarters shows that there are pockets within this space that are beginning to recover, partly due to the higher expenditure on infrastructure by the Centre.
While revenue and profits of these companies recorded a 0.8 per cent and 33.4 per cent slump, respectively, in the last four quarters to June 2016, there was a visible improvement in the June 2016 quarter. Sales and profit in the quarter grew 4.4 per cent and 5.5 per cent, respectively, over the June 2015 quarter.
Manufacturers of industrial consumables used in industries such as automobiles, construction, food processing and petrochemicals showed good growth in their top- and bottom-line in the June quarter.
These companies, which manufacture abrasives, compressors, drilling equipment and machines tools, recorded 5.2 per cent growth in sales in the 12 months to June 2016 over the corresponding period a year ago.
For the quarter ended June 2016, sales and profit for these companies increased around 7 and 30 per cent, respectively, compared to the June 2015 quarter.
Carborundum Universal, a leader in abrasives and industrial ceramics, recorded year-on-year sales and profit growth of around 10 and 20 per cent, respectively, last quarter, thanks to the demand for specialised ceramic applications used in the healthcare industry and improvement in the industrial ceramics used in high-end applications.
Similarly, Elgi Equipments’ profit, too, recorded robust growth, driven by the screw compressor segment, which supplies the electronics, food and beverages industries.
Other players in this segment, such as Ingersoll Rand, Wendt India and Lokesh Machines, alsodid well in the June quarter.
Construction sector picks up
Many manufacturers of engineering goods involved in construction and allied activities for the infrastructure sector have also shown an improvement in earnings For instance, ISGEC Heavy Engineering recorded growth of 22 per cent in sales and 24 per cent in profit in the first quarter of 2016 compared to the same period a year earlier.
This increase was achieved on the back of incremental value-addition in engineering, internal cost control and improvement s in productivity.
In the case of Sanghvi Movers, India’s largest crane rental operator, margin improvements in the operations and maintenance segment helped it record impressive double-digit top-line and bottom-line growth over the last three quarters.
The impetus by the Centre to improve railway infrastructure is seeing companies in this segment gain positive momentum.
Texmaco Rail & Engineering’s year-on-year sales nearly doubled in the June quarter. The company saw a strong order flow for new wagons from Indian Railways.
GPT Infraprojects, too, showed strong growth in this quarter following a strong order flow for concrete sleepers (used in laying railway lines) from the Railways. Many companies in this segment, such as Texmaco Rail and TRF, managed to turn their operations around while others such as Sanghvi Movers and Walchandnagar Industries recorded a sharp jump in profit in the June quarter; thus helping profit growth at the aggregate level for this sub-set.
The 60-odd companies involved in the manufacture of equipment for electricity generation and household electrical appliances are, however, still struggling. This segment contributes close to 55 per cent of the total sales in the capital goods sector.
The Centre’s efforts to improve the state of power utility companies through the UDAY scheme and streamlining of coal supply have not transformed into noticeable investment demand.
Some companies, such as ABB, V-Guard Industries and Techno Electric & Engineering, however, managed to buck the trend.