At a time when the domestic economy remains strong and there is anticipated strong pick-up all across, Nirmal Bang Institutional Research expects that companies in its coverage will deliver decent growth given the execution of a robust order. The profitability at these companies is seen to log 16 per cent on year growth as per the brokerage.

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Motilal Oswal Financial Services (MoFSL) in its preview report on the sector said though there has been an overall moderation in order inflows during the review period owing to the impending election. Nonetheless, in sectors including renewable energy, power transmission and distribution, defense, railways, metro and water, order inflows have logged steady performance in FY24 thanks to the government’s continued thrust on capex.

For the renewable space, ICICI Securities said that FY24 was a remarkable one for the sector and it surpassed the brokerage’s expectations-witnessing a cumulative bid of 50 giga watt of capacity. Also, it noted that order inflows for the wind players is strong amid a sharp rise in conclusion of RE bids and strong pipeline of RE tenders. 

“Green shoots are visible and the ordering momentum is expected to gather steam in the post-election period and is resulting in valuation re-rating for the entire sector,” added the MOFSL report.

Furthermore, given the strong order execution, the MOFSL believes the strong order book offers healthy revenue visibility. Consequently, the brokerage foresees 15 per cent on year growth in execution in Q4FY24. 

“Supply chain issues that had affected previous quarters may continue to weigh on execution over the next couple of quarters, with the Red Sea crisis being a key monitorable,” MOFSL added.

Further, as the brokerage expects product companies to pass on lower raw material price benefits to end users, Ebitda margin is seen to take a hit by nearly 25 basis points. The brokerage expects its coverage universe to report revenue growth of 15 per cent on year, Ebitda growth of 13 per cent and PAT growth of 5 per cent on year.

Nirmal Bang, on the other hand, sees 149bps on year improvement in EBITDA margin on the back of easing RM costs, lower freight costs and better supply chain dynamics. Overall, the brokerage remains bullish on the sector from the near-to-medium term given the recovery in the capex cycle and healthy order inflows.

Key monitorable

The brokerage maintains that the potential adverse impact on working capital is the key monitorable.

Stocks brokerages bet on from Capital goods sector 

Nirmal Bang expects Triveni Turbine to deliver strong growth (+37% YoY) on the back of improved execution post strong order inflows. Furthermore, Power Mech Projects’ topline is also seen to grow by 48% YoY, led by strong execution of its robust order book. MOFSL lists its top pick from the space as ABB India, L&T, and Kirloskar Oil Engines.