Q4FY2007 Capital Goods earnings preview
The Working Group on Power for the 11th Five-Year Plan has envisaged an addition of around 69,000 megawatt (MW) of power generation capacity during the plan period (FY2007-12) and an additional capacity of 86,500MW during the 12th Five-Year Plan. Looking at the current status of the 10th Five-Year Plan's (FY2002-07) capacity addition programme, these targets looks quite aggressive since the government had planned a capacity addition of 41,110MW during the 10th Plan period whereas the actual achievement is likely to be around 25,000MW (only 61% of the target). Out of this about 17,995MW of capacity had already been commissioned till December 31, 2006. However the fact that a total of 31,345MW of capacity is already under construction gives the panel's plan a lot of credibility.
Looking at the huge power generation capacity addition programme of the government (totaling to around 155,000MW in the next ten years), the order flow momentum for the capital goods companies engaged in the power sector, such as Bharat Heavy Electricals Ltd (BHEL), Crompton Greaves, Bharat Bijlee, Indo Tech Transformers, KEI Industries and Genus Overseas, is expected to be robust. Going by the recently announced provisional results of BHEL, wherein its order flow for the full year ended March 2007 registered an increase of 88% to Rs35,633 crore and the order backlog stood at an all-time high of Rs55,000 crore, the time ahead for power ancillary companies appears even more promising.
Q4FY2007 Capital Goods earnings preview: Sharekhan Special dated April 17, 2007