Expect ABB, Siemens, Alstom T&D, Crompton to benefit

Prabhudas Lilladher's report on capital goods sector

We analyzed the Power Grid (PWG) ordering for 9MFY15 ,the key trends are: 1) PWG ordering for 9MFY15 was up 43% YoY at Rs126bn 2) Equipment ordering continues to remain weak in 9MFY15, however we expect pick up in Q4FY15 3) Rs 600bn worth of awards likely over next 3 years 4) Absence of Chinese/Korean players in the equipment market in 9MFY15 5) Chinese/Korean dominate the GIS substation market 6) Power grid increasing focus on local manufacturing. Crompton Greaves, Kalpataru Power, KEC continues to be our preferred pick in the T&D space.

PWG ordering for 9MFY15 remained healthy. Ordering for 9MFY15 stood at Rs126bn (up 43% YoY, however adjusted for HVDC order awards were up only 6% YoY). Trend in ordering is more evenly spread through the year against an earlier trend of Q4 seeing significant orders being awarded. HVDC order dominated the awards followed by transmission EPC awards. We expect the FY15 ordering for PWG in the range of ~Rs160bn (up 29% YoY). Our interaction with PWG suggests pending orders planned at ~ Rs 740bn, of which they expect ~ Rs 600bn worth of projects to be awarded in next 3 years. So it expect to maintain average ordering of Rs 200bn per annum. Focus shifting to new technology products like SVC/STATS COM, GIS, HVDC.

Equipment ordering continued to be weak, with total orders in 9MFY15 standing at only Rs2.86bn largely dominated by transformer orders. While Chinese players dominated the equipment market with market share of ~45% in FY13, the market share of Chinese players in FY14 came down to 9%. Adverse currency movement and domestic manufacturing clause might have led to lower participation and wins for Chinese players. While equipment awarding has been weak, we expect it to pick up given that 104 nos 765KV (500MVA) transformer orders are pending. Our interaction with Powergrid suggests that pricing has stabilized in transformers market.

Read More