GE T&D reported 14.2% y-o-y growth in revenues to Rs 9.9 billion while Ebitda margin stayed flat at 9.3% in Q2FY19.
Order intake during the quarter grew slightly by 2% y-o-y to Rs 7.2 billion, led by momentum from SEBs and offsetting weak ordering from Power Grid. GE T&D’s current orderbook at Rs 62 bn (1.4 x TTM sales) indicates stress in terms of growth and lack of any large order is also expected to impact overall revenue traction.
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Given the clean-up of the balance sheet and focus on cashflow, we believe the company will be able to sail through the current turbulence. Factoring-in the muted order intake, we expect earnings CAGR of -8% in FY18-FY. Capex demand from Power Grid is expected to be muted in the near term; however, we expect buoyancy in the state discoms, tariff-based competitive bidding market and renewable sector. Due to higher competitive intensity, pricing is expected to be competitive and this can impact overall margins.
We expect execution on projects to improve with support from commissioning of poles III/IV of the Champa-Kurukshetra HVDC line. Work worth Rs 2.8 billion on this project is pending execution. Being an election year, we expect the overall execution pace to gain traction. In addition to the inter-country HVDC line being planned to transmit power to Bangladesh, there are various other opportunities in Bangladesh.
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The company also foresees opportunities in Nepal, Sri Lanka and Bhutan, which can support overall improvement in order intake. Though the outlook in terms of ordering from Power Grid is challenging, GE T&D will be able to sail through with orders from private sector, SEBs, renewables and SAARC region. We maintain our ‘Hold’ rating on the stock, with a revised target price of Rs 241.