Engineering & capital goods: Operating margins disappoint

Engineering and capital goods sector reported a 200 basis point drop (year-on-year) in operating margins for the third quarter, primarily due to higher raw material costs, stiff competition and increase in revenue from low-margin projects.

Overall, net profit for companies in this sector declined about three per cent, largely on account of energy and power equipment makers.

However, net sales growth remained healthy at around 18 per cent despite several projects becoming unviable due to high inflation and interest rates.

Engineering major Larsen & Toubro (L&T) registered a 23 per cent rise in net sales compared with the year-ago period, while power equipment maker BHEL clocked net sales growth of 19.2 per cent despite witnessing order cancellations.

Crompton Greaves and KEC International put up strong show on the back of healthy revenue growth from foreign subsidiaries. BGR Energy, as expected, clocked a weak performance.

Thermax posted disappointing sales numbers, led by flat year-on-year revenue in energy segment.

L&T’s strong revenue growth was led by engineering and construction segment.

Operating margins declined 120 basis points from the year-ago period.

Despite that, net profit grew by 18 per cent in Q3 due to higher other income as well as lower tax incidence.

BHEL reported decent growth in Q3 sales, but witnessed margin pressure.

The company saw a 360 basis points decline in operating margin.

This was largely on account of higher material cost and other expenses, which rose by 270-350 basis points as a percentage of sales.

	Net Sales			Net Profit
YoY in %	Jun ' 11	Sep '11	Dec '11	Jun ' 11	Sep '11	Dec '11
Larsen & Toubro	21.1	19.3	22.8	12.0	4.4	18.0
B H E L	10.0	23.7	19.2	22.1	23.6	2.1
Crompton Greaves	5.9	12.8	26.3	-59.0	-44.6	-67.4
K E C Intl.	20.9	26.3	36.3	25.4	-50.4	-52.7
Thermax	32.6	22.8	3.9	20.7	13.6	-4.7
BGR Energy Sys.	-19.2	-32.0	-35.9	-17.0	-34.0	-37.5
Kalpataru Power	7.2	-9.6	-0.8	-8.8	-17.2	-20.6
ISGEC Heavy	31.2	52.5	46.0	44.3	28.9	20.3
Jyoti Structures	13.0	16.5	6.5	-0.7	-10.9	-44.2
BEML Ltd	5.1	55.6	-12.7	10.2	3.8	-20.4
Total	14.5	19.9	18.1	6.4	6.0	-3.2