Aggregate revenue of 74 industrial companies grew 2% y-o-y. Broad-based growth still remains elusive, with aggregate revenue growth remaining stuck at 2- 6% for the previous 8-9 quarters. While engineering companies reported revenue growth, contractors’ revenue continued to decline y-o-y.
The government’s continued thrust on railways and highways has made companies hopeful about sustained order momentum. Industrial companies remain impacted by a lack of broad-based industrial investment intentions, although select segments have had an order uptick.
Aggregate domestic order inflow for Indian E&C companies has remained flat y-o-y in FY17. Railways, power T&D and water were the bright spots in FY17. The strong performers of FY16 had a subdued FY17 – thermal power orders declined 40% y-o-y and NHAI orders were flat y-o-y. The government’s stance on fiscal consolidation means public investments could face fund constraints as well.
After 12% out performance to the broader markets over the last 12 months, our industrials coverage universe is trading at above-cyclical average multiples. Consensus FY18/19 earnings estimates are 4% or 6% above ours, reflecting expectations of a near-term pick-up in the investment cycle.
We do not expect private capex to pick up before FY19. As we had anticipated, the pick-up in public capex is falling short of initial expectations. As a result, the overall investment cycle could remain weak.