In 2015-16, companies had reported orders worth Rs 1.94 trillion, according to the data of the Business Standard Research Bureau. A rise in the order flow, industry analysts and experts say, is not a norm in terms of growth but reflects improvement over the poor performance in 2016-17.
“The growth rate is impressive, but one needs to look at the base effect too,” said Madan Sabnavis, chief economist with CARE Ratings. He added most of the order wins were driven by government spends in sectors such as urban development, roads, and railways.
“I will use the 80-20 rule for these wins, where 80 per cent is government spending and 20 per cent private capital expenditure (capex),” he added.
The biggest order win by value in 2017-18 was by state-owned power utilities. In October, Bharat Heavy Electricals (BHEL) reported an order win of Rs 204 billion for a power project for Telangana State Power Generation Corporation. This was also the largest ever order awarded in the power sector in India.
M S Unnikrishnan, chief executive officer and managing director, Thermax, said the growth rate was owing to a mix of government spends and private capex. “There are sectors where there are no government orders and others where there are only government orders. Sixty-nine per cent would be an overhang of large companies getting bigger orders, where the base effect was lower last year. Fertilisers, oil and gas, and roads and bridges have seen orders,” Unnikrishnan said. Both Sabnavis and Unnikrishnan agree the trend may continue, but it is unlikely the rate would be as high as in 2017-18.
“As an economy we are still stagnant. Growth will be mostly in infrastructure, based on what the government has been spending. There will be an upward movement, but no acceleration,” Sabnavis said.
However, the number of orders won does not show any substantial change, indicating their size was big. Industry analysts say big orders like those of 2017-18 may not come in 2018-19.
“It is highly unlikely this level of growth will continue. The base will go up. Generally, there is 20-40 per cent growth, and the year could have been a blip on the screen,” Unnikrishnan added.
Larsen & Toubro (L&T) is likely to report a healthy trend in its order flow. In 2016-17, L&T said it was at Rs 1,430 billion. In its revised guidance, the company said it expected growth to remain muted. However, the company has surprised the Street with higher order wins in the last two quarters and may outperform its guidance. An email query sent to L&T remained unanswered.
For others like BHEL, there have been efforts to diversify its order book portfolio. Analysts with IIFL said in their February 22 research note: “Transportation is gaining traction (Rs 22 billion order inflows in the nine-month period of FY18) with Indian Railways’ focus on modernisation (electric locos, IGBT systems); it will also undertake rail electrification EPC. It targets metro orders with technology collaboration with Kawasaki (including the Ahmedabad-Mumbai bullet train). It is now entering low voltage transmission for smart cities. The company is aggressively pursuing growth in transportation, transmission and distribution, solar, water and defence space and targets 50 per cent non-coal sales mix (30 per cent at present) over the medium term.”