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HCL Tech signs US $100mn deal for smart grid solutions
HCL Technologies (HCL Tech) has signed its first US $100mn contract in the country for
implementing smart grid solutions in the power sector. Smart grids are part of the
company’s newly formed Ecosystem and Business Incubation Initiative, under which it will
incubate five ideas in different technologies.
A smart grid uses a two-way digital technology to deliver electricity to customers’ homes
and to control appliances to increase energy efficiency and reduce power use. Smart grids
can be used in emerging markets to reduce inefficiencies. There are 6–10 players in the
industry, who are currently offering such solutions.
This is the largest IT contract for power distribution reforms in the country, which will
enable smart grid deployment for a power distribution agency. Under the contract, HCL
Tech will set up an electricity network that can intelligently integrate generators and
consumers to balance supply and demand and can allow greater robustness, efficiency
and flexibility compared to today’s power systems. The company has set up two smart grid
labs in India and one in North Carolina, US, and intends to initially penetrate 5% of the
smart meters. The company has already won the power ministry’s Accelerated Power
Development and Reforms Programme in almost five states. This deal would augur well for
HCL Tech, as smart grids are at a nascent stage and there can be large deals to be chased
where they can become turnkey integrators.
At the current CMP of `394, the stock is trading at 12.4x FY2012E EPS of `31.9. Due to
the recent correction in the stock price, we recommend Buy with a Target Price of `462.
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