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Post-result management commentary from Crompton Greaves (Unrated,
INR 279) referred for the first time to concerns for companies in the transmission and distribution sector. Firstly, there seems to be a delay in fresh
orders from Power Grid (PGCIL), which did not pick up in Q4FY11. Secondly,
high capacity overhang in both Indian and European markets is impacting
realisations and margins. Owing to weak demand, the company stated it is
not interested in commiting to a capacity addition plan for FY12 yet. Overall
the management commentary reflected our sectoral note on the Indian T&D
market dated 3 October 2010 in which we highlighted our concerns for the
sector. Our preference continues to be diversified players like Siemens India.
Key sectoral read through:
* Weak demand environment should continue until at least the second half.
PGCIL, the biggest spender in T&D space, is deferring new capex awards
*Significant over capacity represents another key issue for domestic transformer manufacturers: for Cromption for c31% yoy growth in volumes,
there was c3% growth in value terms, showing significant pressure on the
realisations front. Even the 765kV segment is witnessing competitive pressures and the Chinese/ Korean competition has heated up. *Preference
clause has been implemented by PGCIL for local manufacturing units; however, the Chinese competition has responded by dropping prices further
which remains a concern for domestic manufacturers. *Looking at the result commentary for all the companies in the industrial space, our preference is for large cap players. Within large caps, our preference is for BHEL
(Buy, TP INR 2550) v/s L&T (Hold, TP INR 1725). Within the mid-cap space
our preference is for Siemens India (Hold, TP INR740) v/s Thermax (firm
prices for majority of contracts could hurt) and Areva T&D.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Post-result management commentary from Crompton Greaves (Unrated,
INR 279) referred for the first time to concerns for companies in the transmission and distribution sector. Firstly, there seems to be a delay in fresh
orders from Power Grid (PGCIL), which did not pick up in Q4FY11. Secondly,
high capacity overhang in both Indian and European markets is impacting
realisations and margins. Owing to weak demand, the company stated it is
not interested in commiting to a capacity addition plan for FY12 yet. Overall
the management commentary reflected our sectoral note on the Indian T&D
market dated 3 October 2010 in which we highlighted our concerns for the
sector. Our preference continues to be diversified players like Siemens India.
Key sectoral read through:
* Weak demand environment should continue until at least the second half.
PGCIL, the biggest spender in T&D space, is deferring new capex awards
*Significant over capacity represents another key issue for domestic transformer manufacturers: for Cromption for c31% yoy growth in volumes,
there was c3% growth in value terms, showing significant pressure on the
realisations front. Even the 765kV segment is witnessing competitive pressures and the Chinese/ Korean competition has heated up. *Preference
clause has been implemented by PGCIL for local manufacturing units; however, the Chinese competition has responded by dropping prices further
which remains a concern for domestic manufacturers. *Looking at the result commentary for all the companies in the industrial space, our preference is for large cap players. Within large caps, our preference is for BHEL
(Buy, TP INR 2550) v/s L&T (Hold, TP INR 1725). Within the mid-cap space
our preference is for Siemens India (Hold, TP INR740) v/s Thermax (firm
prices for majority of contracts could hurt) and Areva T&D.
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