Capex booster for capital goods pack

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After a flattish trend in capital expenditure over two years, India Inc is set to see a sizeable jump in investments towards creating new capacities. According to the Centre for Monitoring Indian Economy's (CMIE's) Capex database, new project announcements for the quarter ended June stood at Rs 5.8 lakh crore - 66 per cent higher than the average fresh investment of Rs 3.5 lakh crore per quarter in the preceding four quarters.

"This is a good indication that investments continue to soar and corporate confidence is very strong. There is strong recovery in the industrial capex and electricity, which accounts for almost a third of total investments," says CMIE MD & CEO Mahesh Vyas.


HOW THEY STACK UP
In Rs Crore CMP
(Rs)		 PE
(x)		 Order
book		 OB/
Sales
ABB 803 71.6 8,500 1.4
Areva T&D 287 54.4 5,111 1.4
BHEL 2,453 26.6 148,000 4.4
Blue Star 436 18.9 1,976 0.7
Crompton 277 19.9 6,800 0.7
L&T 1,812 31.8 107,860 2.9
Suzlon 57 -10.2 18,400 0.9
Thermax 756 55.9 6,984 2.1
Voltas 210 17.4 5,000 1.0
Consolidated numbers for Crompton Greaves, Suzlon, Voltas OB is order book
Source: Capitaline, analyst reports

Even on a yearly basis, India Inc is estimated to incur capital expenditure of about Rs 6 lakh crore in 2010-11, the highest in the last five years. Even on a yearly basis, India Inc is estimated to incur capital expenditure of about Rs 6 lakh crore in 2010-11, the highest in last five years and reasonably higher compared to the last two fiscal years when it stagnated around Rs 4.6 lakh crore levels.

That the capex cycle has already begun can be gauged from the sharp rise in India's capital goods index (indicates trend in output of heavy machinery and equipment). Although the low-base effect has helped, in the current year (till May), the average monthly growth in the index at 46 per cent has been impressive. The beneficiaries of this increase in investments believe analysts will be the engineering and capital goods companies. "We are expecting the sector to do well in the second half of 2010-11 and in 2011-12 as well, led by higher orders and improved execution. Execution will speed up and even new orders will pick up due to the closure of the 11th Five-Year Plan in the second half of 2010-11. The government (companies and departments) could rush to announce new orders as they are supposed to achieve the milestones or targets," says Nidhi Agarwal, who tracks capital goods sector at Sharekhan.

http://www.business-standard.com/india/news/capex-booster-for-capital-goods-pack/403445/

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