Capital goods sector feels slowdown pinch

Under strain due to a reduced order inflow and falling margins, capital goods majors Crompton Greaves and Siemens reported a nearly 70 per cent drop in profits in the October-December quarter of the current financial year, according to results announced on Tuesday.

Crompton Greaves’s third-quarter profits at Rs 77 crore were 66.8 per cent lower over the same period the previous year. The power sector, which contributes two-thirds of revenue, was an under-performer, as segment profit fell 74 per cent during Q3 of FY’12. The consumer products and industrial systems division also reported lower profits. The company did not issue any statement on its Q3 performance. Weak second-quarter results had prompted managing director Laurent Demortier to admit 2011-12 would be a “difficult year” for the company because of a slowdown in the economy and increase in commodity prices.

Siemens India’s managing director Armin Bruck, too, blamed poor results on the current economic slowdown. The company reported an eight per cent fall in sales and 70 per cent lower profits. Siemens’ Q1 (the company follows an October-September financial cycle) profits were Rs 71 crore in comparison to Rs 243 crore in same period last year. Its stock fell 1.2 per cent to close at Rs 731.20, while Crompton Greaves shares registered a 0.08 per cent slide to end at Rs 133.20.

Bruck said Siemens’ performance fell below expectations, but noted that was “in parallel” with India’s “challenging” economic environment over the past months. “We witness delays in financial closure of projects and caution in the decision-making process of our customers,” he said in a statement. The current state of the economy could change for the better, he added.

“Recent developments like the higher Index of Industrial Production for November 2011, lower inflation and easing of the credit rates by the Reserve Bank of India (RBI) point to better economic conditions,” Bruck said. “We hope this will lead to improved business confidence in the coming quarters.”

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Larsen & Toubro, which beat market expectations by posting a 22 per cent rise in profits in Q3 2012, has already revised its order guidance from five per cent to 15 per cent. Chief financial officer R Shankar Raman, while announcing the quarter results, said orders worth Rs 15,000-20,000 crore were deferred in the last quarter. Bharat Heavy Electrical Limited’s order book for the first nine months has also shrunk seven per cent on a year-on-year basis and nine per cent on a sequential basis.
Source - Business standard