It's a steady road ahead for capital goods companies in H2FY24

livemint.com:

₹89,153 crore in the September quarter (Q2FY24), up 72% year-on-year. L&T’s order prospects pipeline as of September 2023 also looks strong at ₹8.8 trillion. The engineering, procurement and construction major expects to surpass its order inflow target of 10-12% and revenue growth forecast of 12-15% for FY24.

Some analysts believe around 60% of L&T’s order book is yet to reach the margin threshold stage, which means improvement in profitability could be gradual. During Q2, ABB India, Cummins, and Thermax saw an increase in operating margin due to premium product mix, operating leverage, and normalized commodity prices. “Higher margins should sustain (for product companies), possibly even seeing slight improvements in the future due to sustained demand and a decrease in commodity inflation," said Parikshit Kandpal, analyst at HDFC Securities.

“However, a key consideration is whether companies can successfully pass on price increases to customers or roll back those hikes," he added. Some companies may face challenges in exporting due to a potential decrease in capital expenditure by customers amid a global recession and geopolitical tensions. Besides, volatility in raw material costs and the upcoming general elections in India could disrupt the supply chain, and hinder the current pace of order placement, especially in the near term.

Some infrastructure companies are facing a challenging outlook. Tendering for road projects has remained weak, with awarding pushed to the second half of the year. According to Antique Stock Broking, project tendering activities from April to October were flat year-on-year at ₹7.3 trillion.