engineering electrical sector stocks l&t punj lloyd crompton greaves suzlon

1) The year 2008 has seen the deep economic recession and it has impacted domestic as well as international economy and markets.

2) In the year 2009, some countries, had seen some marginal recovery. Indian companies have also seen some marginal recovery due to financial stimulus packages, lower interest rates etc

3) Going further, in next 2 to 3 years, the western and European countries will also recover and travel towards their growth path.

4) Lot of Indian companies are having international exposure and these companies will get benefits from the revival of western and European countries.

5) The gradual recovery in global economies indicates good news for India’s export -oriented companies as well as those with huge overseas exposure.

6) Recently IMF (International Monetary Fund) revised upward its global GDP estimates. Importantly growth in large economies lie USA, Europe and Japan which together account for about 60% of India’s export is seen improving.

The following are some sector and their respective companies having large international exposure and would get benefited in long run in next 3 to 5 years from the recovery of international markets.

Please note - Taking into consideration about points companies stock prices have already factored in the future valuations so if you are planning to invest in any of the following companies then they should be bought at lower levels as current prices involves higher valuations or else you can write to us and we will mention then appropriate buying levels.
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Overview of Sectors and respective companies have mentioned below

Capital Goods and Engineering Sector
Overview of this sector and their stocks
Most engineering companies took a hit as working capital (capex) across industries slowed down consequent to the credit crisis. New projects were also postponed, which to some extent was also due to the customers’ desire to take advantage of falling commodity prices-customers also started renegotiating (even cancelling) contracts awarded earlier.
The hit was more prominent for companies catering to the Middle East markets where capex plans were also impacted due to lower crude oil prices.

Punj Lloyd
The company generates about 61 per cent of its revenues from the oil and gas sector and of this about 80 per cent comes from markets like the Gulf region, Europe and Africa by primarily offering services in process engineering, pipelines and tankages.
Its orders dropped last year and hence, the business suffered. Thus, a revival in the global hydrocarbon capex is crucial and could change its prospects significantly.

L&T
A revival will also benefit L&T, which generates about 20-25 per cent of its revenues from markets like Middle East. Notably, L&T continues to gain from improving domestic demand- its management recently upped its order book growth guidance to 30 per cent for 2009-10.
In the industrial and power equipment space, many domestic companies had made overseas acquisitions to gain global presence.

Crompton Greaves, a case in point, has seen its order book for overseas markets grew by mere 3 per cent in June 2009 quarter. The company believes that growth this year would range 5 per cent, but next year it could jump to 15-20 per cent as a result of the revival in capex.

Suzlon is another stock to watch given the revival in demand. Analysts believe that many of its global customers postponed their capex. Its international order book thus dropped by almost half y-o-y (year on year) to 1,435 mw in June 2009 quarter.
The company has also lowered its order guidance for 2009-10 to 1,900-2,100 mw as against the 2,4002,600 mw earlier. However, a lot would depend on its ability to lower debt on its books.

Gems and Jewellery Sector
In gems and jewellery, companies like Gitanjali Gems and Rajesh Exports could gain as exports of gems and jewellery which plunged by 26.9 per cent in April 2009 are seen recovering-these shrunk at a lower rate of 7.8 per cent in October 2009.

Pharmaceuticals Sector
For pharmaceuticals players, the economic revival will benefit them in the form of higher R&D spending by companies in the developed world which is positive for CRAMS (Contract Research and Manufacturing ) players like Jubilant Organosys, Piramal Healthcare, Divi’s Laboratories and Dishman.

Also, the easing of credit in East Europe and Russian markets should benefit companies like Dr Reddy’s and Ranbaxy.

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