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Strong inflows; consumer continues to surge

After a slow H1 due to election delays and rains dragging execution, capital goods (CG) companies are set for a strong H2, with most companies retaining yearly guidance. As a result, inflows, sales and margin are likely to be robust in H2. In Q3, CG companies saw 39% YoY growth in inflows and are set to clock in 15% sales growth, while consumer electricals and electronics are likely to continue their growth momentum, up 40% YoY. We prefer Amber Enterprises, Kaynes Technology, Polycab India, RITES, Bharat Electronics, Hindustan Aeronautics, Bharat Dynamics, Eureka Forbes and Garden Reach Shipbuilders & Engineers.

Q3 inflows rise 40% YoY to INR 413bn: Major CG companies, excluding L&T (LT IN), have announced cumulative orders worth of INR 413bn in Q3FY25, up 39% YoY. This includes large orders won by Hindustan Aeronautics (HNAL IN) worth INR 135bn for the supply of 12 Su-30 aircraft. Defence firms inflows rose 19% YoY to INR 207bn while non-defence inflows surged 67% YoY to INR 207bn. Orders were led by power generation, transmission & distribution (T&D), water, defence and EPC.

Likely revenue growth of 14% in Q3: We expect CG coverage universe sales growth of 14% YoY in Q3FY25E based on healthy industrial demand and execution backed by robust backlog. ABB India (ABB IN) Q4CY24E and Siemens (SIEM IN) Q1FY25E revenue may surge 13% and 14%, respectively, on execution of healthy backlog. Thermax (TMX IN) revenue may rise 16% on better execution in industrials products and green solutions. Cummins (KKC IN) revenue could rise 15% YoY on higher realization from CPCB 4+ gensets. KEI Industries (KEII IN) sales may grow 18% YoY on robust infra demand in cables & wires (C&W) along with an uptick in copper prices. BEML (BEML IN) revenue may inch up by a mere 2% due to the slowdown in railway orders execution while RITES (RITE IN) sales could rise 3% YoY as consultancy rises in Q3. KEC International (KECI IN) revenue may grow 6% YoY. Within the defence space, Bharat Dynamics (BDL IN) sales may spike 59% YoY on resolved supply chain issues. Garden Reach Shipbuilders & Engineers (GRSE IN) revenue may go up 40% YoY as it rides the peak in its bell-curve phase execution. Bharat Electronics (BHE IN) sales may rise 21% on better execution and HNAL revenue may go up 5% YoY driven by repair & overhaul.

Consumer electricals, electronics to continue upward growth trajectory: Consumer electricals, durables, and electronics firms may see 40% YoY sales growth in Q3FY25E, led by festival demand, rising localization in electronics, and room air-conditioning (RAC) companies stocking up ahead of Summer demand. Voltas (VOLT IN) revenue may rise 13% YoY on healthy RAC volume growth. Amber Enterprises (AMBER IN) revenue may grow by 33%, led by surge in the electronics division. Kaynes Technology (KAYNES IN) revenue may spike 60% on healthy industrial demand and robust orderbook. Dixon Technologies (DIXON IN) revenue may surge 110% YoY on robust growth in mobiles & new acquisition. V-Guard (VGRD IN) revenue may go up 13%, led by festival demand. Havells India (HAVL IN) revenue could rise 15% YoY, driven by Lloyd (RAC), and ECD. Polycab (POLYCAB IN) revenue could go up 25%, led by robust C&W demand. Crompton Greaves Consumer’s (CROMPTON IN) revenue may grow 9%. Eureka Forbes (EUREKAFO IN) revenue may rise 10%, led by higher volume growth. We prefer Amber Enterprises, Kaynes Technology, Polycab India, RITES, Bharat Electronics, Hindustan Aeronautics, Bharat Dynamics, Eureka Forbes and Garden Reach Shipbuilders & Engineers.

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