Capital goods companies are expected to see revenue growth of 16-18% in the current fiscal — despite a higher base of 20% growth in the previous fiscal — on better execution amid rising orders, Crisil has said in a report.
“Revenue growth is expected to be in the healthy 10-12% plus double digits in the next fiscal, supported by a strong order backlog and steady inflow of new orders. The rating agency said this portends two consecutive strong years for a sector that had seen sluggish growth in FY2021.
“Consistent recovery in private capital expenditure in consumption-based sectors led by increased infrastructure spending in government and private sector and investment in Production Linked Incentive (PLI) schemes, coupled with higher commodity prices, resulted in a strong growth in order book is,” it added.
This segment includes engineering, procurement and construction service providers (excluding road and civil construction) and manufacturers of equipment.
The order book grew by 14% year-on-year in FY20 and 9% in the first half of this financial year to Rs 3.9 lakh crore. As a result, the order book as of September stood at 3.82 times FY22 revenue, higher than the pre-pandemic (March 2019) level of 2.94 times, Crisil said.
Anuj Sethi, Senior Director, Crisil Ratings, said, “The government’s continued thrust on infrastructure and focus on execution driven public expenditure augurs well for capital goods companies that supply cement, power and steel product manufacturers.”
“Further, capacity is being created for PLI driven schemes in automobile, pharmaceuticals, energy, electronics and textiles sectors, opening up opportunities for equipment sales in this fiscal and next fiscal,” he added.