Leading capital goods companies are bracing for their first-quarter results, with YES Securities providing updated target prices and performance outlooks. The brokerage firm expects a stable quarter for the sector despite ongoing geopolitical tensions, driven by strong order book execution and sustained demand, particularly from data centers.
Sector Outlook and Key Adjustments
YES Securities projects core capital goods firms, including ABB India Ltd and Siemens Ltd, to report over 10 percent sales growth, adjusted for divestments. Margins are generally anticipated to remain stable, bolstered by operating leverage. The brokerage has made specific adjustments to its target prices:
- Siemens: Target price cut to Rs 3,250 from Rs 3,300.
- GE Vernova T&D India Ltd: Target price raised to Rs 3,850 from Rs 3,700.
- ABB India Ltd: Target price raised to Rs 5,000 from Rs 4,950.
- VA Tech Wabag Ltd and Jyoti CNC Ltd: Target prices maintained at Rs 2,090 and Rs 1,075, respectively.
VA Tech Wabag: Strong Order Intake Expected
VA Tech Wabag is forecasted to see its order intake surpass Rs 2,000 crore in Q1. The company secured three significant orders during the quarter, with the Kuwait Desal project (a joint venture with HEISCO) being a major highlight. YES Securities does not foresee the current West Asia crisis having a material adverse effect on the company's performance.
"We now forecast over 20 per cent YoY growth during the quarter supported by revenue recognition in most of the key orders including Al Haer, Yanbu, Indosol, Perur etc. Margins are likely to see some upside to about 13.5 per cent supported by operating leverage," stated YES Securities.
The brokerage made only marginal changes to its forecast, retaining the price target at Rs 2,090, based on an FY28 PE multiple of 22x.
Siemens: Growth Driven by Mobility and Smart Infrastructure
Siemens is expected to achieve 12 percent growth, adjusted for its LV Motors business. This growth is anticipated to be led by a robust 20 percent increase in its Mobility division and a 10 percent rise in Smart Infrastructure. Digital Industries is poised to benefit from an uptick in auto capital expenditure, though the full impact may take a few quarters.
EBITDA margins for Siemens are projected at 11 percent, with improvements in both Digital Industries (DI) and Mobility (MO). Despite the growth, YES Securities maintains a 'Neutral' recommendation, citing a risk of stock de-rating amidst normalizing sales growth and margins.
GE Vernova T&D: Sustained Momentum and Swelling Backlog
GE Vernova T&D is set for continued revenue growth momentum, with EBITDA margins expected to remain above 25 percent. The company's order backlog has significantly expanded to Rs 20,000 crore, partly due to a major HVDC order. YES Securities projects FY27 orders to exceed Rs 11,000 crore, supported by related party orders, and domestic orders to grow 10 percent.
The strong order book is expected to sustain revenue growth in the over 30 percent range, with margins stabilizing at 25-26 percent during FY27-28.
ABB India: Electrification and Motion Leading Growth
ABB India's Q2 sales (June quarter) are predicted to grow by 11 percent to Rs 3,300 crore. This growth is primarily fueled by a 15 percent increase in the Electrification business and a 10 percent rise in the Motion business. Both segments are benefiting from increased investments in data centers, a pickup in auto capital expenditure, and ongoing expansion in the railways and electronics sectors.
However, YES Securities expresses caution regarding the overall industrial capital expenditure due to geopolitical tensions, rising inflation, and moderating government spending. The brokerage reiterates a 'Reduce' recommendation for ABB, citing a risk of de-rating.