January 6, 2023
The sector is expected to witness a 10-12% rise in 2024
Growth in 2024 will be supported by a strong order backlog and a steady inflow of fresh orders
The order book for the capital goods sector increased by 9% in the first half of this fiscal to INR 3.9 trillion
The profitability in operating margin increased by about 175 basis points YoY in 2021
India’s capital goods firms are expected to post a 16-18% increase in revenue in FY24 on the back of improved execution amid rising orders, according to a report from ratings agency CRISIL. Additionally, the sector is expected to witness a 10-12% rise in 2024.
According to the report, growth in 2024 will be supported by a strong order backlog and a steady inflow of fresh orders. Media reports said that capital goods companies comprise Engineering, Procurement and Construction (EPC) service providers (excluding road and civil construction) and equipment manufacturers.
The strong order book growth has been a result of higher commodity prices, rising government and private sector spending on infrastructure and steady improvement in private capital expenditure in consumption-based sectors. Additionally, investment in Production Linked Incentive (PLI) schemes has bolstered the order book.
As per the report, the order book for the capital goods sector increased by 9% in the first half of this fiscal to INR 3.9 trillion, and about 14% Year-on-Year (YoY) in FY22.
Experts said that government support has benefitted capital goods companies catering to cement, energy and steel product manufacturers. Additionally, automobiles, pharmaceuticals, energy, electronics and textile segments are achieving further capacity, due to the PLI schemes, enabling the creation of multiple opportunities for equipment sales in 2023 and 2024.
The experts further added that the combined push from government support and increased private infrastructure spending is developing a healthy order book for companies, next year.
According to media reports, the profitability in operating margin increased by about 175 basis points YoY in 2021 to the pre-pandemic levels of about 9.5%. Another contributory factor to the sector’s growth will be the softening of raw material prices in the last 6-9 months. The CRISIL report expects these metrics to drive further improvement in operating margins by 50-75 bps to 10-10.25% in FY24 and FY25.
The experts conclude that the debt to earnings before interest, tax, depreciation and amortisation (EBIDTA) ratio is expected to improve by 1.4 times, and interest coverage by 7 times this year, from 1.5 times and 6.3 times, respectively in last 2022.
Source: Financial Express