India's Capital Goods Sector Shines With Over Rs 8.4 Lakh Crore In Orders

The leading capital goods and engineering companies in India are currently experiencing one of their most busiest seasons, as the total value of their combined orders has soared above Rs 8 lakh crore.

By the end of September 2023, data revealed that the total order book value for 13 of the top 15 publicly traded capital goods and engineering companies in India reached an Rs 8.45 lakh crore (around $101 billion), Business Standard reported.

This figure has not been seen at least since 2018-19.

The rise in orders is largely driven by the escalating demand for construction and infrastructure in India, along with significant orders from global markets, especially those related to energy.

However, this growth brings its own set of challenges.

According to industry executives and analysts, managing resources such as labour and working capital, handling commodity cycles, and sustaining order growth rates are the main challenges that need to be addressed.

Himanshu Chaturvedi, the Chief Strategy and Growth Officer at Tata Projects, has noted a revival in private sector capital expenditure (capex) after it had been subdued for many years.

He attributed this rebound to specific government interventions such as the production-linked incentive scheme and mid-cycle capacity utilisation, among other factors which include deleveraged corporate balance sheets, healthy profitability, and a well-capitalised banking system.

As of March 2023, the Tata group's firm had an impressive orderbook worth Rs 48,000 crore.

Leaders in the industry, like Larsen & Toubro (L&T), have seen a surge in their orderbook to an all-time high of Rs 4.5 lakh crore. This is due to a combination of a rise in infrastructure-related orders within India and substantial orders from international hydrocarbon markets.

Additionally, out of 15 companies, at least two - Ashoka Buildcon and Thermax Global - have stated that their current orderbooks are at an all-time high.

Strong orderbooks are typically seen as a good indication, but they also present their own difficulties. L&T's chief financial officer and whole-time director, R Shankar Raman, stated in a recent Business Standard interview that their main obstacle will undoubtedly be resource management.

To address similar concerns, companies like Kalpataru Projects International are concentrating on resource augmentation.

Amit Uplenchwar, the director of Kalpataru Projects International, stated, “We are going to campuses and skilling labour to meet the rise in demand for labour in tandem with orders. Further, we have added newer assembly lines at some of our factories to accommodate the increase in order wins".

Kalpataru Projects International is among the top 15 companies in the sector, boasting an impressive order book worth Rs 47,040 crore as of September 2023.

Uplenchwar went on to say that a variety of encouraging elements are driving this expansion, such as the surge in India's infrastructure.

“There has also been a rise in demand for contractors who can execute large-scale realty projects with the required credit support. The streamlining of regulations around realty, such as RERA, has led to this rise in demand in the buildings segment,” he said.

Analysts at Geojit Financial Services observed that the government's emphasis on capital expenditure and a resurgence in private capital expenditure give significant momentum to the sector. They noted that the increase in the Transmission and Distribution (T&D) order book and margin enhancement are beneficial for KEC.

KEC, one of the 15 publicly listed entities, reported an order book worth Rs 31,320 crore as of September 2023.

However, the same level of optimism isn't shared by all companies.

G R Infraprojects, one of the 15 listed companies, fears that the forthcoming elections might hinder the pace of growth. The company, with an order book worth Rs 20,000 crore, recently reduced its forecast for new order wins by half in a call with analysts.

Analysts from Motilal Oswal have reported that due to the fierce competition, especially for smaller projects, and in anticipation of the potential effects of the imminent general elections on the allocation of projects, the company's management has adjusted its order inflow forecast for FY24 downwards to Rs 10,000 crore.

However, the situation varies across companies. For instance, L&T's management expects to over-achieve its stated order inflow targets for the current financial year.