Dalal Street Investment Journal – July 20, 2019

68 DALAL STREET INVESTMENT JOURNAL I JULY 22 - AUG 4, 2019 DSIJ. in^

Financial Review For FY19

Engineering

T

he engineering sector is the largest and most

diversified of all industrial manufacturing sectors.

Its significance is monumental as its output

supplements a plethora of industries such as

mining, oil and gas, refinery, steel, automotive

and consumer durables. It can be broadly classified into two

key segments, namely – heavy engineering and light

engineering.

The engineering sector experienced healthy earnings growth in

Q4FY19. EPC companies hold a strong order book and the

pump sector is facing good growth prospects in the upcoming

quarters. This is mainly attributable to the pick-up in industrial

production, which further resulted in healthy growth in

abrasives, ceramics and refractories. The government has

slackened investments in capex. As a result, some of the

companies are likely to witness lethargic order inflows.

Companies like Grindwell, which are relatively more associated

with the auto sector than other companies, experienced

volume pressures in abrasives on account of subdued

production. The major determinant of revenues in this sector is

the size of the order book. Thus, having a strong balance sheet

and well-established execution capabilities is essential for

attracting big orders. However, this creates a need for massive

working capital. But most of the companies receive only a part

of this in the initial stages and the remaining is shelled out as

the project execution progresses.

The engineering sector contributes the most to India’s export

basket and accounts for around 25 per cent of total exports by

value. Engineering exports reached an all-time high in FY19 as

they crossed the US$ 80 billion mark, marking a growth of 6.32

per cent YoY. India has set a target of US$ 200 billion for

engineering exports by 2025.

On an average, net sales of the sector rose 14.87 per cent YoY in

FY19. International Conveyors, SKIL Infrastructure, Rites and

Engineers India reported growth in net revenues of 44.48 per

cent, 40.89 per cent, 36.24 per cent and 35.71 per cent,