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Engineering: Looking at strong FY04

Apr 7, 2003

While most sectors finished FY03 on a glum note, Engineering companies had a whale of a time. Almost all engineering companies finished FY03 with gains in performance and consequently, in stock price.

(Share price Rs)28-Mar-0231-Mar-03% Change
BSE Sensex3,4693,049-12.1%
S&P CNX Nifty1,130976-13.6%
Atlas Copco114277142.3%
Thermax Ltd.7813876.9%
Tata Honeywell14723862.8%
Bharat Electronics12718142.3%
Ingersoll Rand14319536.8%
Crompton Greaves465110.9%
Esab India2941-29.4%
Cummins India5253-1.5%

The table above reflects the overall positive sentiment towards engineering companies in FY03. This came about through a mix of higher orderflows, government's thrust towards power reforms and productivity gains. A look at the order inflow of the top engineering companies puts forth the the reason for the strength in market capitalisation. Both ABB and Bhel reported record order inflow growth (see table below).

Order flow…
Rs bnOrder inflow
in FY03
backlog as a
% FY03 turnover
* nine month period ended December'02

Consequently, most companies finished FY03 with encouraging topline and bottomline performances. We have illustrated the performance of Bhel, ABB and Thermax to highlight this point. All the aforesaid companies have put themselves neck deep in restructuring when the times were not so good. While Bhel reduced its employee base by nearly 23% to 48,000 in the last 4 years, Thermax too, has rationalised its employees by over 16% in recent times. Though we did not include Siemens in this sample, it is worthwhile to note that even this company rationalised its employee size by 7% in the last one year. These measures too gave a further fillip to the companies bottomline.

(Rs m)FY02FY03% change
Order inflow10,92013,05019.5%
Net profit margin (%)6.2%8.1% 
(Rs m)FY02FY03% change
Order inflow98,550112,48014.1%
Net profit margin (%)6.4%6.8% 

Apart from employee rationalisation, these companies have also been taking a hard look at their product folio’s and aligned them to fit consumer needs. While ABB signed up with the parent as a potential global sourcing base for equipment manufacturing, BHEL started to outsource small manufacturing needs to spend more time on research and development of high end products. Thermax restructured its entire management team filling its board with independent directors thus improving management credibility.

(Rs m)9mFY029mFY03% change
Order backlog2,5101,900-24.3%
Net profit margin (%)2.2%4.0% 

With the government continuing its focus on power sector reforms, the sector has much to look forward to in the coming years. The focus on building and enhancing our network of roads, ports, airports and railways will also be a boost for the engineering companies in the coming years. The companies burgeoning order backlog indicates a strong FY04 awaiting the sector.

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Dec 8, 2021 01:13 PM