Top Capital Goods Stocks To Watch Next Week As Suggested By Prabhudas Lilladher

The brokerage firm Prabhudas Lilladher has picked up the capital goods sector and has placed a buy call rating on the shares of Apar Industries, Bharat Electronics Ltd (BEL), Engineers India, Kalpataru Power Transmission, Larsen & Toubro, and Triveni Turbine. The brokerage has issued a hold rating for the shares of ABB India and GE T&D India, while BHEL has been given a sell rating. The brokerage has assigned accumulate ratings to KEC International, Cummins India, Siemens, Thermax, and Voltamp Transformer.

The brokerage has said in a note that "We expect Q4FY22 margins to be impacted in short term due to higher commodity price, supply chain disruption and higher freight cost, which has further accelerated due to geopolitical tensions. Revenues are expected to report a growth of ~5.2% YoY (11.0% YoY ex. L&T) for our coverage universe with product companies expected to report growth of 20.3%, led by healthy demand in both domestic as well as exports market and commodity price pass through."

According to Prabhudas Lilladher "While for EPC companies we expect revenue to grow ~0.8% YoY (-0.5% YoY ex. L&T), due to slower execution amidst higher commodity price. In the near term, working capital may get impacted as payment cycle from government orders may get prolonged due to higher crude price. We continue to prefer companies with strong balance sheet, low debt levels, good corporate governance, well managed working capital cycle and long term scalability. Our top picks in the sector are L&T and BEL."

"Enquiry and tender pipeline has improved over past few quarters, though pace of order conversion will be key monitorable, as there can be some spill over in near term due to higher commodity price and current geopolitical tension. In domestic market traction continues to remain strong from sectors such as infrastructure, data center, railways, metro, pharma, cement, chemical, metal, mining and F&B," the brokerage has highlighted.

"With higher crude price we expect capex to boost from oil exporting regions like Middle East (ME). On exports front enquiry pipeline stands strong from regions like Africa, ME, US, and SAARC. In our view, long term ordering activity likely to remain strong considering strong tender pipeline, government thrust on overall infrastructure development and private capex picking up. The key monitorables will be management guidance on execution pace, margins, working capital and tender pipeline," Prabhudas Lilladher has claimed.

Companies	Rating	Target Price in Rs
ABB India	HOLD	2,209
Apar Industries	BUY	830
Bharat Electronics	BUY	258
BHEL	SELL	34
Engineers India	BUY	89
GE T&D India	HOLD	102
KEC International	Accumulate	559
Cummins India	Accumulate	1,032
Kalpataru Power Transmisson	BUY	467
Larsen & Toubro	BUY	2,357
Siemens	Accumulate	2,602
Thermax	Accumulate	2,158
Triveni Turbine	BUY	244
Voltamp Transformer	Accumulate	2,215
Source: Prabhudas Lilladher. Data as of April 8, 2022