X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Capital goods: Preferring volumes or margins? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 31, 2009

    Capital goods: Preferring volumes or margins?

    The launch of Tata Nano has been well received by all. The vehicle has created a big hype and as a result of such, bookings are expected to fly off the charts. However, a few days back a leading business daily reported that dealers of Tata Motors' small vehicle have been offered margins of only 2% to 2.5% as compared to the typical dealer margins of 3% to 3.5% on the value of the bill. This is understandable considering that Tata Motors itself is expected to earn thin margins on the vehicle. The question is what would you do if you were an auto dealer? Would you go for an exclusive Nano dealership (considering that it is expected to sell like hot cakes) and work on lower margins? Or would you stick to selling other vehicles to protect margins? Engineering companies, whose businesses are dependent on oil and gas investments, may be in a similar situation. As oil prices have crashed over the past year, projects have become less viable for the oil and gas companies (those involved in exploration, production, and transportation of these commodities). As a result of such, order inflow for engineering companies has remained low on account of lower investments, coupled with the overall economic downturn. In addition, many projects have either been put on hold or have been shelved. A leading business daily recently reported that thirteen public sector oil and gas companies have planned capex to the tune of Rs 570 bn to be spent in FY10 itself. This amount would be invested on expanding supplies and building new transportation networks for oil and gas. Another piece of positive news is that the government is expected to spend only Rs 250 m, which translates as nearly 0.04% of the total estimated investments. As such there would be a lower possibility of deferment of this mega spending plan. As per the plan, ONGC will be investing nearly Rs 302 bn including an outlay of Rs 94 bn for its foreign arm ONGC Videsh. This amount will be largely aimed at E&P activities (exploration and production). IOC will be spending Rs 110 bn. In addition, Gail has estimated its capex budget to be at around Rs 56 bn, up by about 63% as compared to the capex in FY09, mainly towards developing pipeline capacities and in city gas distribution projects. Other public sector oil companies that are a part of the spending plan include Bharat Petroleum Corporation Ltd.(BPCL), Hindustan Petroleum Corporation Ltd.(HPCL), Oil India, Chennai Petroleum Corporation (CPCL), Bongaigon Refinery & Petrochemicals Ltd. (BRPL), Numaligarh Refineries (NRL), Mangalore Refinery and Petrochemicals Ltd. (MRPL), Balmer Lawrie and Biecco Lawrie. The above-mentioned development is positive news for companies providing related services such as E&P services, pipeline and pump manufacturing, amidst others. It will help increase their order inflow and subsequently their revenue growth for at least the next two years. However, it may be noted that a handful of companies have entered these segments (on account of their lucrative nature) in the recent past. This has led to a strong increase in competition. With order inflow being slow in the past few months, companies will be looking to increase their backlog by bidding for these projects. Aggressive bidding on account of increased competition could bring down margins for companies as the newer players may go all out to bid for projects. What remains to be seen is whether companies will go for selective bidding in order to maintain/ improve margins or bid strongly and compromise on margins to fuel growth.

     

     

    Equitymaster requests your view! Post a comment on "Capital goods: Preferring volumes or margins?". Click here!

      
     

    More Views on News

    BHEL: Margins Dip into the Negative (Quarterly Results Update - Detailed)

    Aug 14, 2017

    The company also saw order inflows of Rs 18 billion during the quarter, which was a massive 41% YoY lower than the previous year's quarter.

    Cummins Ltd: Domestic Revenues the Saving Grace (Quarterly Results Update - Detailed)

    Aug 14, 2017

    The domestic economy continues to grow largely in areas which are positively impacted through continuing government investments in infrastructure.

    ABB: Large Orders Remain Muted (Quarterly Results Update - Detailed)

    Aug 2, 2017

    Decisions on government initiatives and private investments were stalled in anticipation of upcoming tax restructure.

    L&T: Amidst a Challenging Business Environment (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Bank credit to industry remained muted and investment momentum was driven mostly by public sector spending.

    L&T: Private Sector Capex Remains in a Tizzy (Quarterly Results Update - Detailed)

    Jul 24, 2017

    Vast majority of private players remain more concerned with debt payback rather than starting new projects.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE CAPITAL GOODS


    Aug 18, 2017 (Close)

    S&P BSE CAPITAL GOODS 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS