INSUBCONTINENT EXCLUSIVE:
Capital goods makers face a stiff task of emerging out of the downturn triggered by the disruption caused by coronavirus
But, the recent tumble in their share prices have made valuations of some of these companies cheap, said analysts
L-T, Siemens, KEC International, GE Power, Kalpataru Power, Cummins and AIA Engineering are among the top picks.
Many of these stocks have
fallen by over 50 per cent from their 52-week highs
capital goods companies are trading at attractive valuations
said Renjith Sivaram, an analyst with ICICI Securities
these companies, measured by price to earnings (PE) ratio, are trading below their ten-year averages
For instance, L-T is currently trading at 11.67 times trailing 12 months earning as compared to its 10 -year PE of 23.38 times.
Analysts
warn that the recovery for the sector could be tedious as infrastructure projects are expected to slow down further as a result of the
Factories have been shut down, while payment delays and employee costs are expected to drain companies
Analysts said in such a situation, investors should focus on companies that are geared up to bounce back faster.
Shares of infrastructure
and capital goods companies have been underperformers in the past decade in the absence of capex spending.
Analysts said companies with
short-cycle businesses would benefit as their net cash balance sheets will help them in maintaining low fixed cost against that of highly
enabling them to absorb the shock from economic downturn for a considerable time, while Thermax has relatively high fixed cost, which may
prefers companies such as L-T, Siemens, BEL and Greaves Cotton which have tweaked their business models successfully and aligned them with
customer needs amid economic disruptions
analyst, Edelweiss Securities.
