We analyse ordering data as available from Power Grid Corporation of India Ltd (PGCIL) website and find a pick-up in momentum from August 2011.
Furthermore, the share of substation/transformer orders has gone up in terms of overall orders, in line with our expectation.
Substation/transformers accounted for 34% of total orders YTD (year-to-date) from PGCIL in FY12 as against 15% in FY11. In absolute terms, total substation orders are already 10% higher than FY11 quantum (INR value). However, competitive intensity remains high as we note the presence of several small players across sub-segments.
Despite the encouraging pick-up in order awards from PGCIL YTD FY12, we expect near-term pain to continue for the sector as competitive intensity continues to aggravate.
Even as Chinese/Korean competition has reduced substantially, new domestic players across segments continue to gain market share (e.g. TRIL). Furthermore, given our continuing concerns on: (i) land & environmental hurdles and generation project delays hampering T&D execution, (ii) the poor health of state electricity boards (that contribute a larger share of T&D orders) restricting new order flow, and (iii) rising competition from domestic and/or foreign companies pressurising margins, we remain cautious on our outlook for T&D equipment makers in the medium term. CRG is our top pick in the sector.