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Industrials
India
PGCIL orders lacking traction; tower okay but equipment drastically low. We
study ordering trends including segment-wise market share trends. PGCIL ordering
remains weak, particularly in equipment and subs., though tower orders grew yoy in
YTD-FY2011. Seasonality, January orders (Rs12 bn vs Rs7.5 bn last year) bode well for
4QFY11E. Comp’n in tower stabilizes in FY2011 vs FY2010 though only partially (SPIC
JVs bag sizable share). PGCIL probably drives less than 1/3rd of business but is focused
upon for data availability (state data broadly unavailable). Positive on CRG on diversified
base. Highlight 42% order de-growth for ABB India in 4Q, cut earnings estimates.
Weak PGCIL ordering continues; stronger tower orders but steep decline in equipment orders
PGCIL has awarded contracts worth Rs55.5 bn in YTD - FY11 versus Rs64.4 bn a year ago. The fall
is concentrated in the substation (Rs4.8 bn in YTD-FY11 down 66%) and equipment space (Rs11.1
bn YTD-FY11 down 43%). In contrast, the tower business at Rs26.7 bn grew 37% yoy. The extent
of the weakness is reflected in the qoq decline in 3QFY11 (3Q is seasonally stronger than 2Q). We
highlight that last quarter is a seasonally strong quarter and has got off to a reasonable start with
Rs12.5 bn worth awards in January 2011 primarily for tower orders (Rs9.9 bn).
Competition in tower space stabilizing but only partially; SPIC JVs grab significant share
After seeing execution of several new players which won tower orders in FY10, PGCIL has
tightened its bidding requirements. This is reflected in lesser players winning tower orders in FY11
and major players like KEC and Kalpataru regaining market share. This development does stabilize
competition in towers in FY11 vs FY10 to a certain extent. We do highlight the relative ease with
which Southern Petrochemical Industries Corporation Ltd (SPIC) has gained market share from
incumbents (Rs9.3 bn PGCIL orders since April-09 vs Rs4.1 bn total orders in 1998-2008). We
believe this reflects the level of commoditization in the tower space. It indicates increase in
competitive intensity which would keep margins of key players under pressure.
Equipment and substation orders too low; PGCIL bidding norms may result in foreign-domestic JVs
Equipment and substation ordering has reduced drastically in FY11 on a yoy basis. Although the
data is shallow, the basic ecosystem remains the same. Top three bidders still account for more
than 50% share. Recent 765kV tenders from PGCIL mandates winning foreign bidders to either
form a subsidiary or a JV with an Indian manufacturer within 6 months of winning the bid. We
believe it would be difficult for foreign manufacturers to set up domestic capacities based on
(1) current overcapacities in the domestic transformer industry (TRIL and Areva utilizing half their
capacity) and (2) steep decline in per MVA realization. Foreign players may therefore go for JVs
with Indian players. Smaller but ambitious players like TRIL potentially stand to benefit from it.
Positive on CRG; highlight 42% order de-growth for ABB India, retain REDUCE, revise estimates
We retain BUY on CRG (TP Rs310) based on diversified presence across sectors and geography
reducing near-term risks to estimates and strong execution. We are negative on ABB and Siemens
based on (1) expensive valuations, (2) commodity prices and competition fueling margin pressure
and (3) decline in order flows. We highlight 42% yoy decline in ABB India’s 4QFY11 orders (Rs63
bn in CY2010, versus order inflow of Rs87 bn in CY2009) implied by ABB global results. We
reduce our earnings estimates for ABB India to Rs9.8 from Rs10.8, Rs27.9 from Rs31.4 and Rs33.2
from Rs38.1 for CY2010, CY2011E and CY2012E, respectively. We retain REDUCE rating with a
target price of Rs700 (implying 24X Mar-12E earnings).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
India
PGCIL orders lacking traction; tower okay but equipment drastically low. We
study ordering trends including segment-wise market share trends. PGCIL ordering
remains weak, particularly in equipment and subs., though tower orders grew yoy in
YTD-FY2011. Seasonality, January orders (Rs12 bn vs Rs7.5 bn last year) bode well for
4QFY11E. Comp’n in tower stabilizes in FY2011 vs FY2010 though only partially (SPIC
JVs bag sizable share). PGCIL probably drives less than 1/3rd of business but is focused
upon for data availability (state data broadly unavailable). Positive on CRG on diversified
base. Highlight 42% order de-growth for ABB India in 4Q, cut earnings estimates.
Weak PGCIL ordering continues; stronger tower orders but steep decline in equipment orders
PGCIL has awarded contracts worth Rs55.5 bn in YTD - FY11 versus Rs64.4 bn a year ago. The fall
is concentrated in the substation (Rs4.8 bn in YTD-FY11 down 66%) and equipment space (Rs11.1
bn YTD-FY11 down 43%). In contrast, the tower business at Rs26.7 bn grew 37% yoy. The extent
of the weakness is reflected in the qoq decline in 3QFY11 (3Q is seasonally stronger than 2Q). We
highlight that last quarter is a seasonally strong quarter and has got off to a reasonable start with
Rs12.5 bn worth awards in January 2011 primarily for tower orders (Rs9.9 bn).
Competition in tower space stabilizing but only partially; SPIC JVs grab significant share
After seeing execution of several new players which won tower orders in FY10, PGCIL has
tightened its bidding requirements. This is reflected in lesser players winning tower orders in FY11
and major players like KEC and Kalpataru regaining market share. This development does stabilize
competition in towers in FY11 vs FY10 to a certain extent. We do highlight the relative ease with
which Southern Petrochemical Industries Corporation Ltd (SPIC) has gained market share from
incumbents (Rs9.3 bn PGCIL orders since April-09 vs Rs4.1 bn total orders in 1998-2008). We
believe this reflects the level of commoditization in the tower space. It indicates increase in
competitive intensity which would keep margins of key players under pressure.
Equipment and substation orders too low; PGCIL bidding norms may result in foreign-domestic JVs
Equipment and substation ordering has reduced drastically in FY11 on a yoy basis. Although the
data is shallow, the basic ecosystem remains the same. Top three bidders still account for more
than 50% share. Recent 765kV tenders from PGCIL mandates winning foreign bidders to either
form a subsidiary or a JV with an Indian manufacturer within 6 months of winning the bid. We
believe it would be difficult for foreign manufacturers to set up domestic capacities based on
(1) current overcapacities in the domestic transformer industry (TRIL and Areva utilizing half their
capacity) and (2) steep decline in per MVA realization. Foreign players may therefore go for JVs
with Indian players. Smaller but ambitious players like TRIL potentially stand to benefit from it.
Positive on CRG; highlight 42% order de-growth for ABB India, retain REDUCE, revise estimates
We retain BUY on CRG (TP Rs310) based on diversified presence across sectors and geography
reducing near-term risks to estimates and strong execution. We are negative on ABB and Siemens
based on (1) expensive valuations, (2) commodity prices and competition fueling margin pressure
and (3) decline in order flows. We highlight 42% yoy decline in ABB India’s 4QFY11 orders (Rs63
bn in CY2010, versus order inflow of Rs87 bn in CY2009) implied by ABB global results. We
reduce our earnings estimates for ABB India to Rs9.8 from Rs10.8, Rs27.9 from Rs31.4 and Rs33.2
from Rs38.1 for CY2010, CY2011E and CY2012E, respectively. We retain REDUCE rating with a
target price of Rs700 (implying 24X Mar-12E earnings).
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