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Capital goods sector on a roll

Last updated on: May 04, 2007 10:08 IST

The domestic capital goods industry has been going through a boom for the last five years and appears confident of maintaining the same momentum in the current year.

This confidence is based on the buoyant mood in the manufacturing sector. Larsen & Toubro, which describes itself as a surrogate of the country's capital goods sector, feels that the current inflationary cycle, which has been driven by supply constraints, is prompting firms to make additional investments in capacity. "The attractiveness in investment in capital assets is high in all sectors of manufacturing," says a company spokesperson.

Crisil, a credit rating agency, expects volume growth in the industry to continue in 2007-08 despite pressure from imports after further duty cuts in the last budget. Profitability is also likely to remain stable despite higher raw material costs, partially mitigated by duty cuts. Crisil expects bulging order books and rising exports to continue in the medium term.

L&T's order book position is 'strong' and the company expects its performance to be 'good' in the current quarter. In the full year 2007-08, it expects 'to better last year's performance.'

The firm has recently formed a joint venture with Mitsubishi Heavy Industries to manufacture supercritical boilers for power plants in anticipation of two ultra mega power projects being finalised.

The mood in ABB India, which has a large presence in power equipment and automation is similar. The Indian capital goods sector is in fine fettle with promising prospects and the growth in the order books of ABB India bears testimony to this, says a spokesperson.

"Our strong order intake is promising for the future," says Ravi Uppal, vice-chairman and MD, ABB India. Order intake was up 43 per cent and the order backlog rose 59 per cent in the last quarter over the corresponding quarter.

BHEL, the country's leading power equipment manufacturer, is equally confident about the current year, based on what it sees as a spurt in activity to add capacities in India and globally. In the power plant equipment industry, which constitutes a major chunk of BHEL's business, there is going to be reasonably good growth in terms of new start-ups, the firm foresees.

However, most companies in the sector have ramped up capacities and this could create some pressure in the short term. Apparently, the only risk to the sector is delay in project executions which will add to the interest burden, BHEL feels. It is obviously thinking of L&T's JV (a direct competition) and the delay in the finalisation of ultra mega power projects.

Bharat Electronics, the public sector electronics leader catering to defence needs, has targeted a turnover of $1 billion in 2007-08. "We have been growing at a CAGR of 12-15 per cent for the last five years. We have a very healthy order book position and are quite confident of achieving the target set for the current fiscal," an official spokesperson said.

The order book as on April 1, 2007, is estimated to be around Rs 9,000 crore (Rs 90 billion) against Rs 6,600 crore (Rs 66 billion) last year. Bharat Earth Movers, another large public sector player, has set a top line target of Rs 3,200 crore (Rs 32 billion), a growth of 24 per cent, for the current year. The company's order book position stood at Rs 1,617 crore (Rs 16.17 billion) at April-end and it hopes to get another Rs 1,030 crore (Rs 10.3 billion) worth of orders by end of the first quarter, said V RS Natarajan, chairman and managing director, BEML.

The machine tools sector expects to continue to grow rapidly during the current year. The industry, which grew by about 25 per cent in 2006-07, is likely to witness a 30 per cent growth during the present fiscal, said Srinivas Shirgurkar, managing director, Ace Micromatic Ltd, one of the industry leaders. The Ace Group itself grew by 23 per cent last year and has set a target of 50 per cent growth for the current year.

Shirgurkar expects the growth in the sector to be driven by robust demand from the automobile and auto components sector. "As most of the major two-wheeler and four-wheeler makers are expanding their capacities and many new greenfield manufacturing facilities are coming in, we expect a robust demand for our products during the present fiscal," he added.

BS Reporter in Bangalore