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T&D EQUIPMENT SECTOR UPDATE
q While the robust PGCIL ordering is a positive, benefit of the same would
be muted due to weak order intake from private and state sector utilities.
q Our interactions with industry players indicate that ordering from state
utilities has been slack since past 18 months. Moreover, with major
states like UP going into elections, ordering has taken a beating as election
code of conduct is applicable.
q We continue to maintain a negative outlook on the sector in view of intense
price competition from domestic and foreign players as well as
sluggish market growth for T&D. ABB (Reduce with TP of Rs 670), Siemens
(Reduce with TP of Rs 780), Crompton Greaves (Reduce with TP of
Rs 130), Areva T&D (Reduce with TP of Rs 158).
While PGCIL's ordering has been strong YTD, orders from state
utilities and private sector have slowed down.
PGCIL ordering trend
n Ordering from PGCIL has gained momentum in recent months as the company
nears end of the XIth plan period.
n In 9M-YTD FY12, the central transmission utility placed orders worth Rs 105 bn vs
Rs 65 bn in the corresponding period of the previous fiscal. The utility has placed
orders worth Rs 66 bn in Q3FY12 alone.
n Bulk of the order awards were accounted by the transmission line tower segment
at 51%. The competition in the transmission towers segment continued to remain
strong with many as 11 players announcing order wins.
n PGCIL had excluded circuit-breakers from the Sub-station package. This has significantly
reduced the entry barrier for non-T&D equipment players. As a result,
competition in the substation space has increased from EPC players like Jyoti
Structures, KEC, Kalpataru Power, L&T etc.
n In the 765 KV transformer space, TRIL (in JV with ZTR Ukraine) has emerged as
a significant player. In Q3 FY12, out of Rs 4.0 bn worth of 765 KV transformer
orders placed by PGCIL, Rs 3.3 bn were bagged by TRIL-ZTR. As of now, TRIL's
facility is not qualified for making 765 KV transformers.
n Interactions with industry indicate that PGCIL is in the process of revising
prequalification norms for 765 kv equipment supply.
n Competition from the Chinese and South Korean companies in the PGCIL business
appears to have subsided in FY12. However, the competition from foreign
players continues to be strong in the private sector space. In Q3FY12, Sterlite
Grid awarded 765 kv transmission equipment orders totaling Rs 5.0 bn to Areva,
Baoding (China) and Hyundai Heavy Ind (South Korea).
n While the robust PGCIL ordering is a positive, benefit of the same would be
muted due to weak order intake from private and state sector utilities.
Near-term outlook on T&D spending remains negative
Our interactions with industry players indicate that ordering from state utilities has
been slack since past 18 months. Moreover, with major states like UP going into
elections, ordering has taken a beating as election code of conduct is applicable.
Due to issues like delays in land acquisition, domestic coal scarcity and soft merchant
tariffs, investment in power generation has taken a hit in FY12. Taking cognizance
of the situation, the Union Ministry of Power has cut down its 12th plan capacity
addition target. The capacity addition target has been scaled down from over
1 lakh MW to 75,785 MW. The 12th plan target is less than the ministry's goal for
the 11th plan (78,700 MW). We believe, this could have an impact of T&D spending
in the 12th plan.
Power Grid Corporation of India Limited (PGCIL), has proposed to invest Rs 1.0 trn
during the 12th Plan period, nearly double the investment during the 11th Plan
(2007-2012). Long term outlook on the power T&D remains healthy, however in the
near-term weak state utility spending and lack of slowdown in private sector investment
in power generation remains a negative.
Remain Negative on the T&D equipment sector
We continue to maintain a negative outlook on the sector in view of intense price
competition from domestic and foreign players as well as sluggish market growth for
T&D. ABB (Reduce with TP of Rs 670), Siemens (Reduce with TP of Rs 780),
Crompton Greaves (Reduce with TP of Rs 130), Areva T&D (Reduce with Rs 158).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
T&D EQUIPMENT SECTOR UPDATE
q While the robust PGCIL ordering is a positive, benefit of the same would
be muted due to weak order intake from private and state sector utilities.
q Our interactions with industry players indicate that ordering from state
utilities has been slack since past 18 months. Moreover, with major
states like UP going into elections, ordering has taken a beating as election
code of conduct is applicable.
q We continue to maintain a negative outlook on the sector in view of intense
price competition from domestic and foreign players as well as
sluggish market growth for T&D. ABB (Reduce with TP of Rs 670), Siemens
(Reduce with TP of Rs 780), Crompton Greaves (Reduce with TP of
Rs 130), Areva T&D (Reduce with TP of Rs 158).
While PGCIL's ordering has been strong YTD, orders from state
utilities and private sector have slowed down.
PGCIL ordering trend
n Ordering from PGCIL has gained momentum in recent months as the company
nears end of the XIth plan period.
n In 9M-YTD FY12, the central transmission utility placed orders worth Rs 105 bn vs
Rs 65 bn in the corresponding period of the previous fiscal. The utility has placed
orders worth Rs 66 bn in Q3FY12 alone.
n Bulk of the order awards were accounted by the transmission line tower segment
at 51%. The competition in the transmission towers segment continued to remain
strong with many as 11 players announcing order wins.
n PGCIL had excluded circuit-breakers from the Sub-station package. This has significantly
reduced the entry barrier for non-T&D equipment players. As a result,
competition in the substation space has increased from EPC players like Jyoti
Structures, KEC, Kalpataru Power, L&T etc.
n In the 765 KV transformer space, TRIL (in JV with ZTR Ukraine) has emerged as
a significant player. In Q3 FY12, out of Rs 4.0 bn worth of 765 KV transformer
orders placed by PGCIL, Rs 3.3 bn were bagged by TRIL-ZTR. As of now, TRIL's
facility is not qualified for making 765 KV transformers.
n Interactions with industry indicate that PGCIL is in the process of revising
prequalification norms for 765 kv equipment supply.
n Competition from the Chinese and South Korean companies in the PGCIL business
appears to have subsided in FY12. However, the competition from foreign
players continues to be strong in the private sector space. In Q3FY12, Sterlite
Grid awarded 765 kv transmission equipment orders totaling Rs 5.0 bn to Areva,
Baoding (China) and Hyundai Heavy Ind (South Korea).
n While the robust PGCIL ordering is a positive, benefit of the same would be
muted due to weak order intake from private and state sector utilities.
Near-term outlook on T&D spending remains negative
Our interactions with industry players indicate that ordering from state utilities has
been slack since past 18 months. Moreover, with major states like UP going into
elections, ordering has taken a beating as election code of conduct is applicable.
Due to issues like delays in land acquisition, domestic coal scarcity and soft merchant
tariffs, investment in power generation has taken a hit in FY12. Taking cognizance
of the situation, the Union Ministry of Power has cut down its 12th plan capacity
addition target. The capacity addition target has been scaled down from over
1 lakh MW to 75,785 MW. The 12th plan target is less than the ministry's goal for
the 11th plan (78,700 MW). We believe, this could have an impact of T&D spending
in the 12th plan.
Power Grid Corporation of India Limited (PGCIL), has proposed to invest Rs 1.0 trn
during the 12th Plan period, nearly double the investment during the 11th Plan
(2007-2012). Long term outlook on the power T&D remains healthy, however in the
near-term weak state utility spending and lack of slowdown in private sector investment
in power generation remains a negative.
Remain Negative on the T&D equipment sector
We continue to maintain a negative outlook on the sector in view of intense price
competition from domestic and foreign players as well as sluggish market growth for
T&D. ABB (Reduce with TP of Rs 670), Siemens (Reduce with TP of Rs 780),
Crompton Greaves (Reduce with TP of Rs 130), Areva T&D (Reduce with Rs 158).
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