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q DPIL has commissioned Extra High Voltage Cables plant (one of India's
first) to manufacture 500 KV cables. Globally, there are only seven manufacturers
with capability to make upto 500 KV cables.
q The market demand in the EHV segment is rapidly gaining momentum
with fast rate of urbanization across the country. Due to environmental
issues and right-of-way constraints, construction of overhead tower and
power lines are no longer feasible in densely urbanized areas. Thus, the
other alternative to transmit power in cities is through EHV underground
power transmission systems using power cables.
q DPIL is trading at 4.9x FY12 earnings. On an EV/EBITDA basis, the stock is
trading at 4.4x FY12 EBITDA. We maintain BUY on DPIL with an unchanged
price target of Rs 264
Key highlights
n DPIL has commissioned Extra High Voltage Cables plant to manufacture 500 KV
cables. The plant has been supplied by Maillefer, France. Globally, there are only
seven manufacturers with capability to make upto 500 KV cables.
n The company has started trial production for the plant and expects to manufacture
33-66 KV cables and progressively move towards 220 KV and above EHV
cables. The plant is highly automated and foreign technicians are working on
imparting training to the plant personnel.
n The plant is equipped with state-of-the-art production facility such as VCV (Vertical
Continuous Vulcanising) tower to produce high voltage XLPE (Cross Linked
Polyethylene) insulated Power Cables. Since such cables are installed in the
trunk lines of high voltage power transmission grids in the urban areas, extreme
quality and reliability are required.
n The company has sent its products for type-testing and awaiting approvals from
the testing institutes. Customers typically demand supply experience of 200-300
kms as prequalification. DPIL has the option of bidding with Maillefer who has
the requisite prequalification.
n The management indicated that the ramp-up of the capacity may take 2-3
months as the company does not have orders on hand for EHV cables. Meanwhile,
the management expects to utilize the plant for making HT cables (upto
33 KV). The demand for HT cables is ruling firm and the existing capacity for HT
cables is running at full capacity.
n The company is in the process of bidding for a 600 kms tender for EHV cables
from the transmission utility in Gujarat (GETCO).
n As of now, the only domestic player in the EHV cables segment is Universal
cables (UCL) with capacity to make up to 500 kv cables. UCL has a technical
collaboration with the Furukawa Electric Co. Ltd., Japan. In the coming months,
KEI and Finolex Cables are expected to enter the EHV cables market.
n The basic materials in EHV cables remain the same as for LT/HT cables ie copper,
Aluminum and XLPE (different grades for various KV ratings). The insulating
material is largely imported.
n The market demand in the EHV segment is rapidly gaining momentum with fast
rate of urbanization across the country. Due to environmental issues and right-ofway
constraints, construction of overhead tower and power lines are no longer
feasible in densely urbanized areas. Thus, the other alternative to transmit power
in cities is through EHV underground power transmission systems using power
cables. The EHV underground cable transmission system has advantages of lower
gestation period for implementation, free from land acquisition & right-of-way
problems, lower transmission losses, freedom of maintenance and lower lifetime-
cost.
n It is estimated that the demand for EHV cables in the country for the year 2008-
09 was Rs 4.0 bn and in year 2009-10 at Rs. 9.0 bn. The demand is expected to
continue to grow at a high rate.
n In the current fiscal, the company expects to generate revenues between Rs 500-
750 mn from the EHV cables segment.
n The company's transmission towers plant with a capacity of 48000 mtpa has
commenced commercial operations. The Company has recently received an order
of Rs 780 mn to supply tower materials for 400 KV Quad and twin lines aggregating
13531 MT to be supplied over the next 6 months. The tower segment
should contribute revenues between Rs 1.0-1.5 bn in FY12.
n In view of the competition and unfavourable payment terms, the company is
going slow on the EPC segment and is being selective in order bidding. This segment
is likely to post degrowth in the current fiscal.
Valuation and Recommendation
DPIL is trading at 4.9x FY12 earnings. On an FY11 EV/EBITDA basis, the stock is
trading at 4.4x FY12 EBITDA.
We maintain BUY on DPIL with an unchanged price target of Rs 264
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