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Power Equipment: Key drivers in 2011
Order Inflows from Power to accelerate, while orders from Industrial capex may take time to recover
During FY09-11 private sector Gencos placed orders at a brisk pace, wherein activity from PSUs were lackluster due to
bureaucracy (NTPC orders delayed) and delayed execution (PGCIL orders delayed)
Expect orders from PSUs to revive from FY12 with award of NTPC/ DVC bulk tender (13 GW), PGCIL (USD 5-6 bn p.a.) and award of
12th plan orders by state sector. However, orders from private to take a breather, as most of them (Lanco, Reliance, Adani, etc.)
have already placed large orders with Chinese manufacturers
Early cyclical companies (motors, compressors, pumps, small boilers, machine-tolls, etc) witnessed recovery in FY11 on the back
of sectors such as textiles, auto, etc and revival of large projects stalled during financial crisis
Commencement of large projects in Metals and Oil & Gas are key for pick-up in ordering for Industrial capex (demand for captive
power for BHEL & Thermax and automation for ABB & Siemens), which are currently witnessing delays due to environmental, land
acquisition and fuel linkage related hurdles
Pressure visible in margins due rising input costs (metals, oil, etc), wage inflation (costs and labor shortage) and
appreciating INR (reduces competitiveness vis-à-vis imports). However, impact to be visible only towards the latter
half of FY12, as a significant proportion of existing order book contains price escalation wrt to commodity prices
Pricing power gaining traction for T&D equipment, while losing traction for BTG manufacturers
T&D Equipment: Introduction of clause for mandatory domestic sourcing to the tune of 50% significantly reduces competitiveness
of imports (Chinese & Korean) which had gained market share over the past couple of yrs
BTG Equipment: Govt rejected the proposal to levy custom duty on Chinese equipment. Additionally, entry of new domestic
manufacturers eg Bharat-Forge + Alstom, BGR + Hitachi, Thermax + B&W thru NTPC’s bulk tendering to further pressurise prices.
Current valuations at 1 yr fwd P/E of ~25x for T&D equipment suppliers (Crompton P/E at 17x) leave NO room for
disappointment, while for BHEL 1yr fwd P/E of 16x partially captures potential mkt share erosion due to increased competition
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