3 Stocks To Buy From The Engineering, Infra And Capital Goods Space

Emkay Global has come up with its latest report on the Engineering, Infra and Capital Goods space. The report highlights the performance of 35 companies in the Capital Goods, Infrastructure and Defense sectors and shows where they stand presently compared to preCovid times.

"We have looked into sales/PAT growth, gross margin, EBITDA margin and net profit margin expansion/contraction on a YoY/2-year CAGR basis (9MFY22). The report also highlights order book growth and future tendering prospects," the brokerage has said.

Top buys from the sector

According to Emkay Global, L&T, KEC and KPTL are its top picks (Buy) in the sector. LT (ex-services) trades at 15x FY24E EPS.

"KEC has had a good year in terms of inflows and has expanded its offering in the Oil & Gas sector. While KPP has presently been affected by lower inflows, we believe it will catch up in the coming quarters and will strengthen its balance sheet. We believe as JMC merges with KPP, the issues around growth will be solved. Over time, we expect re-rating," the brokerage has said.

 

High commodity prices, a negative

According to Emkay Global, the Infrastructure/Defense segments were the most affected by high commodity prices - 336bps/226bps contraction on a 2-year basis, while companies in the Capital Goods space were able to manage better with only a 75bps contraction.

"During Apr-Jan'22, tenders for all sectors/all sectors ex Roads saw a 2-year CAGR of 34%/36%, while awards witnessed only a 31%/18% CAGR. Two key things are: 1) while the tender pipeline remains strong, awards are lagging; and 2) Road is clearly driving awards presently, along with Railways and Water Supply," Emkay has said in its report.

Strong tender pipeline

During Apr-Jan'22, tenders for all sectors/all sectors ex Roads saw a 2-year CAGR of 34%/36%, while awards witnessed only a 31%/18% CAGR. Two key things are: 1) while the tender pipeline remains strong, awards are lagging; and 2) Road is clearly driving awards presently, along with Railways and Water Supply

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.