The Hindu Business Line : IIP take on ‘capital goods’ different

BL Research Bureau The latest Index of Industrial Production (IIP) numbers hint at a significant slowdown in the capital goods sector. From over a 16 per cent growth in December 2007, growth in the capital goods index has slowed down to a measly 2.1 per cent year-on-year. While this may ring a few alarm bells, the picture does not appear as gloomy if we consider the cumulative growth numbers.

There is also a substantial disconnect between the capital goods constituents in the industrial production index and the key players in the “capital goods” sector in the listed space.

Investors may take solace from the fact that most of companies in the listed space have clocked in healthy growth numbers and no evidence is available from their quarterly numbers on a slowdown. For the quarter ended December 2007, revenues of key listed capital goods companies grew by about 33 per cent in comparison to the same period last year.

Order flow

The buoyant order books of companies such L&T (Rs 49,570 crore), BHEL (Rs 78,000 crore) and Punj Lloyd (Rs 11,000 crore) also refute fears of any drastic slowdown. Sales numbers of companies such as Cummins India and Kirloskar Oil Engines that manufacture diesel engines (which has the highest weightage in IIP capital goods) also do not suggest any slowed growth momentum, with a robust double-digit growth in revenues last quarter.

Sales numbers and order books of shipbuilding companies such as ABG Shipyard (order book of Rs 8,277 crore) also negate the possibility of any immediate slowdown. While companies such as BHEL and Thermax did witness slower growth (14 per cent and 54 per cent), growth rates remained healthy and were explained mainly by temporary factors such as delayed orders and capacity constraints.

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