Fresh order inflows have also been lower than expected. ABB saw just 10 per cent rise in the order book. The current order backlog at Rs 4,444 crore is 0.65 time CY20’s estimated revenue, indicating low revenue visibility. Thus, analysts at Emkay Research expect moderate-to-severe impact in the medium term for ABB. ABB follows the January-December financial year, and Siemens October-September.
For Siemens, too, a challenging environment for sectors such as infrastructure, auto and industrial capex impacted its FY20 order inflows, which declined by 19 per cent YoY, say analysts.
An analyst at a domestic brokerage said Siemens is a highly cyclical stock due to the high correlation between the firm’s revenue growth and India’s gross fixed capital formation. Moreover, both firms have a large share of short-cycle and/or low-ticket orders, which could hurt during times of slowdown.
Arafat Saiyed, analyst at Reliance Securities, agrees there are more near-term concerns for firms such as ABB. Comparatively, he is more confident on larger, more diversified players like Larsen & Toubro (L&T), which has higher visibility. Private capital expenditure (capex) is likely to weaken further, while government spending on capex may not support significantly in view of the diversion of state funds for Covid relief.
Recently, L&T top management said it does not see significant capex by the private sector for the next 12 months at least. But, its sizeable order book of over Rs 3 trillion provides good revenue visibility.
Naveen Kulkarni, chief investment officer at Axis Securities, feels that slowing capex cycle and execution headwinds will weigh on medium-term prospects of ABB and Siemens.
With both stocks trading at rich valuations — Siemens at 47x FY20 estimates and ABB at 40x CY21 estimates — further underperformance is not ruled out.
Although Cummins and Thermax
are yet to declare their March quarter results, Motilal Oswal Financial Services estimates their revenues will decline by a lesser rate of 12-17 per cent.
After disruption, manufacturing units, however, are restarting work. Thermax
said its international operations in Denmark, Germany, Indonesia and Poland continued without major disruption. However, uncertainties prevail for Cummins, which said as the Covid-19 situation is evolving, its impact on operations cannot be estimated.