Sharekhan has prepared a research report on power and capital good stocks ahead of their Q3FY2022 results. Here is Sharekhan's take on the stocks to buy from the space. We just want to warn investors to invest with discretion, given that the Sensex is up above the 60,000 points mark.
Healthy growth in product based companies
Sharekhan expects capital goods coverage universe to report 12.8% y-o-y revenue growth (ex-L&T 17.6%) led by a pick-up in execution and better labour availability for project-based companies (up 11.1% y-o-y driven by L&T & Bharat Electronics Ltd ) and healthy growth in product-based companies (up 22% y-o-y).
"L&T is expected to see muted net earnings on account of pressure on margins and lower other income y-o-y. Operating Margins (OPM) for capital goods ex-L&T is expected to contract 63 basis y-o-y and product-based companies witness margin contraction (down 167 bps y-o-y) owing to higher commodity prices. Overall, the capital goods universe is expected to witness a flattish PAT due to L&T (net profits down 6% y-o-y) and product-based companies (down 1.3% y-o-y). For our power universe, we expect decent growth in power demand which would drive PLF with high coal prices benefiting Tata Power," the brokerage has said.
Stocks to buy from the Power And Capital Goods space
Sharekhan likes several stocks and has recommended a buy on the same. "Among project-based companies, we prefer L&T, Bharat Electronics, Honeywell Automation India, Carborundum Universal, KEC while in the consumer durables space we prefer Polycab, Dixon Technologies, Amber Enterprises and KEI Industries. In power we prefer NTPC, Power Grid and Tata Power," the brokerage has said.
Valuation and view
Sharekhan also prefers companies with a strong diversified order book, execution capabilities and healthy balance sheet (in case of project-based companies). "In the consumer durables segment, we prefer companies with a strong cash flow and better working capital management. Hence, among project-based companies, we prefer L&T, Bharat Electronics, Honeywell Automation India, Carborundum Universal, Cummins India, KEC while in the consumer durables space, we prefer Polycab, Dixon Technologies Amber Enterprises and KEI Industries," the brokerage has said.
The above stock has been picked from the brokerage report of Sharekhan. 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. The author and his family do not own any of the stocks mentioned above.