Published on 22/10/2020 1:00:01 PM | Source: Emkay Global Financial Services Ltd

Engineering and Capital Goods Update - Tendering and order activity slips in Aug`20 By Emkay Global

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Tendering and order activity slips in Aug’20

Key trends seen in Aug’20

* With the gradual lifting of the lockdown, tendering and awarding activity had picked up in Jul’20 but slipped modestly in Aug’20 and was still below the normal run-rate despite a low base from last year (election-related slowdown). Overall, on a yoy basis, orders were up 12%, while tenders were down 20%.

* Tendering activity picked up only in railways (up 144% yoy), while Irrigation (down 70% yoy), Water Supply (down 40% yoy) and Roads (down 36% yoy) saw a drop. YTDFY21, tenders rose 62% mostly due to an extremely favorable base from 1HFY20.

* Awarding activity was driven by sectors such as Roadways (up 21% yoy), Real Estate (up 3.5x yoy) and Power Equipment (up 25% yoy). Railways saw a decline of 34% yoy. YTDFY21, awards are down 13% yoy despite a low base from 1HFY20.

* Major orders finalized in Aug'20 include: 1) Rs26bn order for supply of six pinaka regiments to the regiment of artillery of the Indian Army awarded to Tata Power and L&T; and 2) VPR Mining Infrastructure bagged a Rs13bn contract for overhead removal for exposing various coal seams, including its drilling, excavation, loading in Ananta OCP, Jagannath Area in Angul district of Odisha.


Top picks from Emkay coverage

* L&T: Medium-term pain due to slowing government capex is offset by a likely market share gain and the strong long-term pipeline across water, metro and railways. The valuation is comfortable at ~11x adj. FY22E P/E (bottomed at 7x in 2008).

* KNR Constructions and PNC Infratech: They have a strong pipeline of DPR-approved and land-ready road projects for ordering in their focus geographies. KNR and PNC are also among the few construction names to generate consistent OCF/FCF. They are trading at 8-9x adj. FY22E P/E.

* Kalpataru Power: Kalpataru’s balance sheet metric is improving with steady medium-term visibility. It has a strong long-term pipeline of railway and T&D orders. Kalpataru is trading at 7.3x FY22E P/E.


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