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Engineering: What's stopping growth? - Views on News from Equitymaster
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  • Sep 21, 2000

    Engineering: What's stopping growth?

    If we take a look at the operational performance of the top 10 engineering companies (by sales), all figures stating an economic revival come to a nought. The turnover of the top 10 companies actually fell in FY2000 when compared to FY99. The same is true for the net profit figures of these companies.

    Going nowhere…
      Sales Net Profit
    Company FY99 FY00 FY99 FY00
    BHEL 71,832 66,085 5,446 5,250
    Crompton Greaves 16,825 16,746 231 -1,466
    Bharat Electronics 12,263 15,406 536 1,015
    Bharat Earth Movers 12,442 13,168 6 150
    Siemens 10,080 10,834 -560 351
    KEC International 10,579 9,373 259 86
    Cummins 6,451 8,258 746 933
    ABB 8,692 7,758 377 372
    Blue Star 4,717 4,750 162 232
    Ingersoll Rand 3,728 4,134 546 568
    Total 157,609 156,512 7,749 7,491
    Why this degrowth, when almost every other manufacturing sector has shown encouraging results. One reason could be that when economic recovery takes place, the engineering sector is last one to record the same. The recovery takes time to trickle down to this sector. Another major reason is that almost all the big engineering companies depend largely on the power sector led demand growth. The power sector as we know, has huge potential. But going by the happenings in the power sector the potential looks like remaining just that i.e. potential.

    On the macro front, the growth in India's index for industrial production has been mostly consumption led. Even that is now showing signs of slowing down. During April-May 2000 the IIP actually fell to 5.6% from 6.2% in the corresponding period during FY99. On top of that, the rising crude oil prices will further put the pressure on this sector's growth, atleast in the short term.

    What can probably bring the spotlight back on the engineering sector is major growth in power sector investments and also restructuring of the government owned engineering companies. By restructuring we mean, either a divstment in favour of a strategic partner or dividing big behemoths like Bharat Heavy Electricals (BHEL) into smaller companies with sharper focus.



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