L&T To Cummins: Nomura Expects Earnings Momentum To Continue For Industrial Companies

Nomura expects India's capital goods companies to maintain their positive earnings momentum and is optimistic about the sector due to the confluence of government and private capital expenditures. Private investment is gaining momentum, and the uptick is complemented by the surging business assessment index, reflecting improved demand conditions, Nomura said in a note on April 17.

"These factors collectively reinforce our optimistic stance," Nomura said.

Given that most of the headwinds are likely behind, Nomura expects streamlined execution in the fourth quarter. However, the two-year lead time for transformers, with prices quadrupling over the past three years, may pose challenges for companies involved in the space, it said.

The brokerage has raised the earnings estimates for Cummins India Ltd., ABB India Ltd. on margin improvement, and Larsen & Toubro Ltd. on execution. However, Nomura has downgraded ABB to 'neutral' following the rally in the stock price. "Following the stock's rally of 54% over the past six months (vs. Nifty up 12%), we downgrade our rating to neutral (from buy)."

• The brokerage maintains 'buy' and with a target price of Rs 4,230 per share.

• The surge in fourth-quarter order inflows leads to upward revision of FY24 inflows.

• Fourth quarter order inflows were driven by high-speed rail, and projects in the Middle East.

• In response to the surge in order inflows, Nomura upwardly revise our execution estimates by 3% for FY26F.

• Expect margins to gradually recover as new projects reach margin thresholds.

• Expects order inflows to be around Rs 79,700 crore, with non-core orders expected at Rs 15,700 crore.

• Nomura downgraded ABB to 'neutral' from 'buy' rating with a target price of Rs 6,660 per share.

• Recent stock rally of 54% in the past six months warrants a rating downgrade.

• Raises CY25 earnings by 5% on margins touching 15% by CY26.

• Structural changes over the last three years led to 14-15% margin trajectory.

• Premium valuation to sustain driven by improved margins visibility.

• The brokerage maintains 'neutral' with a target price of Rs 3,040 per share.

• Revenue growth to be led by the industrial and distribution segment.

• Margin uptick could be seen due to increasing share of the distribution segment, cost reduction program, and operating leverage.

• Exports which had dipped during the last quarter are expected to recover sequentially.

• Increased earnings estimates and target price on improved outlook.