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Gradual opening up of private sector capex

Project execution is limping back to normalcy, though there is a concern due to social distancing norms. Steel companies are gearing up towards capacity expansion and this can result in a major uptick in the overall private sector ordering activity in medium to long term. There has been buoyancy in private sector led by cement, process industries, chemicals and pharma.

Public spending towards infrastructure and traction from multi-lateral projects continues to fuel demand. We factor-in revenue growth of 39.6% YoY in Q1FY22E for our coverage universe, given the low base of Q1FY21. Over a lockdown impacted low base, PAT is likely to turnaround to Rs24.4bn. Our top picks are L&T, KEC International, Kalpataru and ISGEC. Factoring the improvement in growth outlook, we have revised target prices of L&T, Cummins, KEC, Kalpataru, VA Tech Wabag, Honeywell, Grindwell and Carborundum upwards.

* Public spending continues to crank-up infra growth: Government investment under infrastructure continues at a healthy pace. Also, multi-lateral funded projects such as metro, roads and large projects are witnessing traction.

* Strong growth expected in steel sector with positive rub on private sector capex: Given the recent secular bull run in commodities, de-leveraged balance sheet and China plus one strategy by certain global market players, steel companies have announced capacity addition. This improves the overall demand outlook in medium to long term.

* Strong growth prospects: Execution of projects is gradually returning to normalcy and we expect the overall utilisation to improve. Infrastructure and efficiency improvement may be the major pillars, which will support the overall growth. Industry focus will be on maintaining a healthy balance sheet by prioritising collections; automation and digitalisation trends continue to witness healthy adoption. Hence, our top picks are L&T, KEC International, Kalpataru and ISGEC.

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