T&D segment to get a boost as demand, capex and commodity prices drive growth: Motilal Oswal

The brokerage remains positive on companies in the power segment that have a presence across the transmission space as “a strong addressable market can result in 15-20 percent growth in T&D segment inflows and revenues”.

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Improved tendering activity, the Central Electricity Authority’s near-term pipeline of projects and positive management commentary are expected to drive the power transmission and distribution or T&D sector, Motilal Oswal analysts highlighted in a recent report.

Over the past few quarters, key players have seen a marked uptick in revenue and profitability. This, according to analysts at the brokerage, is driven by improving demand, healthy ordering momentum, improved pricing and stable commodity prices.

Also read: Kalpataru Projects International, arms bag orders worth Rs 2,071 crore

Most players such as Siemens, Voltamp Transformers, Transformers and Rectifiers (India) and CG Power and Industrial Solutions have also reported higher capacity utilisation and announced expansion plans Besides better capacity utilisation, the report added that margins have also seen an uptick because of an improved product mix and stable commodity prices. “Going forward, companies expect the momentum to continue given the robust visibility in the power T&D space,” the report noted.

Addition of generation capacity, the report said, is expected to boost transformer capacity addition as the current supply is constrained by already high capacity utilisation. This will help fulfil demand coming from both domestic and international markets.

According to Motilal Oswal analysts, there has also been an increasing shift toward larger projects that will be beneficial for players across the value chain. “Most companies are already indicating that tendering activity has already increased in the last one year as compared to the last 5-6 years,” they said.

Initiatives like the production-linked incentive scheme are expected to benefit the segment when it comes to raw materials like specialty steel (CRGO or cold-rolled grain-oriented steel) which is mostly imported. But the report also noted that due to exposure to these commodities, the industry faces the risk of fluctuations in raw material prices, which is mitigated through variable pricing clauses linked to indices created by the Indian Electrical and Electronics Manufacturers’ Association.

Brokerage view

Motilal Oswal remains positive on companies in the power segment that have a presence across the transmission space as “a strong addressable market can result in 15-20 percent growth in T&D segment inflows and revenues”. The analysts see a higher scope for margin improvement in the near term for Siemens, Hitachi Energy, GE T&D, ABB and transformer companies.

The brokerage has a buy call on ABB, Siemens, Kalpataru Projects and L&T, a sell call on Hitachi Energy, and a neutral call for KEC International.

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