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The engineering quarter story - Views on News from Equitymaster
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  • Nov 6, 2000

    The engineering quarter story

    The September ended quarter results have come and gone. After an appraisal of the performance of individual companies, it is only logical that a sector wise performance is looked into. Here, we make an attempt to appraise the quarterly performance of the engineering sector, taking 7 larger companies as a sample. Our sample universe includes Alfa Laval, ABB, Bhel, Crompton Greaves, Gabriel India, Ingersoll Rand and Wartsila NSD.

    (Rs m) QSep00 QSep01 Change
    Sales 21,144 20,950 -0.9%
    Other Income 541 1,506 178.5%
    Expenditure 19,129 20,469 7.0%
    Operating Profit (EBDIT) 2,015 481 -76.1%
    Operating Profit Margin (%) 9.5% 2.3%  
    Interest 362 304 -15.9%
    Depreciation 623 604 -3.0%
    Profit before Tax 1,780 1,071 -39.8%
    Tax 633 154 -75.7%
    Profit after Tax/(Loss) 1,146 917 -20.0%
    Net profit margin (%) 5.4% 4.4%  
    No. of Shares (eoy) (m) 416.3 416.3  
    Earnings per share* 2.8 2.2  

    In the quarter ended September 2000, these seven companies together declared a marginal decline in turnover compared to the corresponding quarter in 1999. But a 7% increase in their expenditure took its toll on the sector's bottomline, which declined by 20%. The decline would have been even higher had it not been for a 179% surge in other income and a 16% decline in the interest outgo. Lower tax provisioning (down 76%) also helped the sector reduce its net profit decline.

    Though the performance was bad, but there were a few bright spots. The decline in interest outgo signalled that the companies were looking to prune their debt servicing costs. But the sector will have to look at improving its cost efficiency. A 7% surge in expenditure on a stagnant turnover does not bode well for the sector.

    India's No. 1 engineering company, Bharat Heavy Electricals Limited (Bhel), is a major contributor to this sample. A 90% decline in its bottomline during the quarter had a telling effect on the sector's performance as a whole. Except ABB and Wartsila NSD, none of the other companies performed well.

    However, almost all these companies are showing a healthy order book position and it is expected that their performance will be much better in the next quarter. The bourses probably are following this, and as a result, many of these companies, which were trading at near their 52 week lows, are back in favour.



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