Capital Goods - IndiaNotes

Capital Goods January 22, 2014
We analyzed the Power Grid (PWG) ordering for 9MFY14 which offers little to cheer
about. The key trends are: 1) PWG ordering for 9MFY14 was down 35% YoY at
Rs86bn 2) Equipment ordering continues to remain weak in 9MFY14 3) Absence of
Chinese players in the equipment market in 9MFY14 4) Trend of consolidation on
transmission EPC market breaks, smaller players back in the market 5) PWG is likely
to ease PQ norms for GIS substation; this should help reduce foreign dominance in
GIS 6) TL & Substation dominated ordering. Crompton Greaves continues to be our preferred pick in the T&D space.
Kunal Sheth
[email protected]
+91-22-66322257
Sensex v/s BSE Capital Goods Index BSE Capital Goods

Overall ordering in 9MFY14 down 35% YoY: PWG ordering for 9MFY14
remained subdued. Ordering for 9MFY14 stood at Rs87.3bn (down 35% YoY).
Trend in ordering is more evenly spread through the year against an earlier
trend of Q4 being the period in which most of the awarding is done.
Transmission EPC continued to dominate ordering in 9MFY14 with 48% share. In
the overall ordering, Substation (27%) and Equipment ordering remained weak
with a market share of 5.7% in 9MFY14 (Exhibit 1). We expect the FY14 ordering
for PWG in the range of ~Rs160bn (flat YoY). Our interaction with PWG suggests
pending ordering worth Rs260bn to be tendered over the next two years
(14400ckm of Transmission line, 9 Substation and 50,000MVA of transformer
capacity). Apart from this, new approvals are likely to come over the next two
years which will drive the ordering.

Transmission tower ‐ competition hotting up: Transmission orders continue to
command high share in the overall ordering in PWG (48% in 9MFY14). The trend
of consolidation, which was visible from FY13 till H1FY14, seems to be breaking.
We note that smaller players like EMCO and Bajaj Electricals have started
bagging orders again in Q3FY14. A new player, Ketan Construction, who has also
forayed into this segment and won a 765KV tower package, is also a surprise.
Limited qualification for these players was restricting them from gaining
significant market share and in turn, helping larger players in the industry like
KEC/Kalpataru/L&T/Tata projects etc. who enjoyed ~75% market share in FY13
& H1FY14. Our analysis of the number of players bidding for each projects also
show that number of players bidding have also increased to 8-9 currently from
4-5 previously.
Sensex
110
100
90
80
70
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
60
Source: Bloomberg Stock Performance (%) 1M Sensex 0.6 BSE Capital Goods Index (3.5) ABB
(4.6)
Action Construction 8.2
Areva T&D
(3.4)
BGR Energy Systems 0.5
BHEL
4.8
Crompton Greaves (10.6)
Cummins India
(5.1)
Jyoti Structures
9.1
Kalpataru Power
(4.6)
KEC Int.
9.5
Siemens
(9.2)
Suzlon Energy
5.3
Thermax
1.8
Voltas
(5.2)
6M 5.2 12M 5.5 4.1 (9.0) 9.1
20.7
11.0
0.4
(0.2)
32.6
0.0
48.8
30.0
59.7
5.7
30.0
11.6
34.8
(7.4)
(31.9)
5.7
(54.0)
(25.1)
2.1
(7.6)
(33.3)
(15.8)
(14.1)
(10.2)
(44.4)
14.8
7.5
Contd…2
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Sector Update Lower order flow and increased competition Capital Goods

Equipment ordering (Transformer/Reactor/Circuit breaker) ‐ market share for Chinese players decline: Equipment ordering continued to be weak, with total
orders in 9MFY14 standing at Rs4.9bn largely dominated by reactor and circuit
breaker. Bundling of transformer order with substation orders in 9MFY14 also
could have led to lower standalone equipment ordering, while Chinese players
dominated the equipment market, with market share of 40-45% in FY13. The
market share of Chinese players in 9MFY14 came down to 18%. We note that
the Chinese players were present in all the bids and still didn’t win any projects;
we believe adverse currency movement could have played a part (RMB has
appreciated ~16% in the last one year against Rupee). In our estimate, with
PWG becoming more stringent about the domestic manufacturing clause, we
could see some moderation in the Chinese player’s ability to compete and win
bids for full year FY14 as well. Domestic players like Crompton Greaves are,
thus, benefiting and hence, dominated the ordering in H1FY14 with 54% market
share, followed by ABB with 12% market share. Our recent interaction with
industry players suggest that the high competitive bidding witnessed earlier has
stopped in the last few tenders. However, with the recent takeover of Vijai Electricals by Toshiba of Japan and TEBA of China setting a 20,000MVA factory in
Vadodara, we expect competitive intensity could rise again in this segment.

Substations ‐ market moves towards GIS: Substation orders contributed 27% to
PWG’s 9MFY14 overall ordering, while for FY13, the same was at 35% largely
due to a single huge HVDC order worth Rs25bn. We note substation ordering is
largely dominated by GIS substation (63% of 9MFY14 substation orders).
Hyosung continued to bid only in the GIS substation market and win orders. We
continue to see the dominance of foreign players in the GIS substation market.
Pinggao Corporation, a Chinese company won the bid in Q1FY14 and Sterling &Wilson in Q2FY14. For 9MFY14, foreign players commanded market share of
96% in GIS substation. However, we expect PWG to ease PQ norms for GIS,
benefitting the local players like ABB, SIEMENS, Alstom T&D and Crompton
Greaves and reduce the dominance of the foreign players.
January 22, 2014
2
Capital Goods
Exhibit 1: Break‐up of ordering (Rs bn) FY09
FY10
FY11 FY12
FY13
Conductor
36.99
15.07
27.3
53.15
12.42
9MFY14
10.21
26%
13%
15% 24%
8%
12%
‐59%
81% 95%
‐77
NA
% share in total order Growth % (YoY) Insulator
% share in total order Growth % (YoY) Other
% share in total order Growth % (YoY) Substation
% share in total order Growth % (YoY) Transformer/Reactor
% share in total order Growth % (YoY) Transmission
% share in total order Growth % (YoY) 3.94
8.87
2.96
5.56
5.35
4.60
3%
8%
2% 2%
3%
5%
125%
‐67% 88%
‐4%
NA
4.38
5.9
7.22
6.24
3.94
2.63
3%
5%
4% 3%
2%
3%
35%
22% ‐14%
‐37%
NA
38.85
21.84
70.89
30.51
56.45
23.20
27%
19%
40% 14%
35%
27%
‐44%
225% ‐57%
85%
NA
13.15
21.77
10.23
27.36
11.12
4.99
9%
19%
6% 12%
7%
5.7%
65%
‐53% 168%
‐59%
NA
46.54
42.36
60.14
98.58
71.99
41.64
32%
37%
34% 44%
45%
48%
‐9%
42% 64%
‐27%
NA
Automation
0.10
% share in total order 0.1%
Growth % (YoY) NA
Total Orders 143.85
115.81
178.75 224.74
161.28
87.36
‐19%
54% 26%
‐28%
NA
Growth % (YoY) Source: Power Grid, PL Research Exhibit 2: PWG Quarterly Ordering trend (Rs bn) 129.9
107.9
74.1
64.8
61.1
21.8
24.2
30.9
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
Q1FY12
3.3
Q4FY11
Q2FY11
Q4FY10
Q3FY10
Q2FY10
Q1FY11
9.6 15.0
10.2 14.2
32.8
31.7
24.4
Q3FY11
26.8
Q1FY10
46.7
36.2
Source: Power Grid, PL Research January 22, 2014
3
Capital Goods
Exhibit 3: 9MFY14 Ordering Break‐up Particulars Conductor Apar Industries Ltd
Galaxy Transmissions Pvt. Ltd
(Rs m) % Share
1,325.53
13.0%
607.02
5.9%
1,330.08
13.0%
628.55
6.2%
Hindustan Vidyut Products Limited(HVPL)
3,734.47
36.6%
JSK Industries Pvt Ltd
1,249.52
12.2%
M/s KEI Industries Ltd
12.67
0.1%
Gupta Power Infrastructure Ltd
Hind Aluminium Industries Ltd (HAIL)
Sterlite Industries (India) Ltd
Total Conductor Insulators 1,319.53 12.9%
10,207.36 11.7%
Bharat Heavy Electricals Ltd (BHEL)
1,904.32
41.4%
Dongguan Gaoneng Electric Co Ltd
247.50
5.4%
Goldstone Infratech Ltd
235.48
7.0%
84.88
1.8%
Jiangsu Xiangyuan Electric Equipment Co. Ltd.
224.50
4.9%
LS Cable & System Ltd.
246.19
5.4%
6.58
0.1%
10.68
0.2%
Guangzhou Xinyuan Hengye Power Transmission Device Co. Ltd
M/s Savita Oil Technologies Ltd,Mumbai
M/s. Paramount Communications Ltd
Modern Insualtors Ltd
Phoenix Technology Group Co. Ltd.
Total Insulators Substation ABB LTD
Alstom T & D India LTD
Alstom T&D India LTD
234.85
5.1%
1,318.26
28.6%
4,601.23
5.3%
13.84
0.1%
539.99
2.3%
923.95
4.0%
Bharat Heavy Electricals LTD (BHEL)
1,914.21
8.3%
Crompton Greaves Ltd (CGL)
1,012.35
4.4%
Hyosung Corporation
3,393.25
35.1%
267.88
1.2%
Kalpataru Power Transmission Ltd (KPTL)
M/s D. B. Construction
4.89
0.0%
3,362.13
25.4%
Siemens Ltd.
934.27
4.0%
Sterling and Wilson Ltd
149.67
0.6%
TBEA Shenyang Transformer Group Co. Ltd
1,421.09
6.1%
Techno Electric & Engg. Company Ltd
1,990.86
Pinggao Group Co Ltd
Total Substation 8.6%
23,200.30 26.6%
Contd…5
January 22, 2014
4
Capital Goods
Exhibit 4: 9MFY14 Ordering Break‐up Particulars (Rs m) % Share
Transformer ABB LTD
588.99
11.8%
Alstom T&D India Limited
237.55
4.8%
Alstom T&D India Limited, Kolkata
6.48
0.1%
ALSTOM T&D INDIA LTD, KOLKATA
72.48
1.5%
Bharat Heavy Electricals Limited (BHEL)
306.82
6.2%
Crompton Greaves Ltd (CGL)
153.71
3.1%
JV of CGL, India & C G Electric, Hungry
805.97
16.2%
JV of CGL, india & ZTR, Ukraine
1,864.48
37.4%
M/s Omicron Energy Solutions Pvt Ltd
8.12
0.2%
M/s Scope T&M Pvt Ltd
9.00
0.2%
932.15
4,985.75
18.7%
5.7%
TBEA Shenyang Transformer Group Co. Ltd
Total Transformer Transmission Emco Ltd
Guru Nanak Overseas Company Private Limited, Kolkata
Jyoti Power Corporation Pvt. Ltd.
6,190.37
14.9%
18.14
0.0%
522.87
1.3%
Kalptaru Power Transmission Ltd (KPTL)
9,437.29
22.7%
KEC International Ltd
6,907.08
16.6%
Larsen & Toubro Limited
5,577.67
13.4%
2.13
0.0%
60.51
0.1%
M/s R.L. Construction
M/s Suhara Powerline Pvt. Ltd., Nagpur
M/s Taurus Powertronics Pvt Ltd, Bangalore
7.61
0.0%
937.63
2.3%
Tata Projects Ltd
6,621.45
15.9%
Bajaj Electricals Ltd
2,435.95
5.9%
Ketan Construction Limited
Total Transmission 2,919.56
41,638.25
7.0%
47.7%
SHYAMA POWER INDIA LIMITED
Contd…6
January 22, 2014
5
Capital Goods
Exhibit 5: 9MFY14 Ordering Break‐up Particulars Other AGC Networks Ltd.
Asbesco (India) Pvt Ltd
Citycom Networks Private Ltd
(Rs m) % Share
72.14
2.7%
138.97
5.3%
16.24
0.6%
EMI Transmission Ltd
256.28
9.8%
ERI TECH LIMITED
316.81
12.1%
ESCICO Private Ltd,
14.31
0.5%
151.22
5.8%
9.98
0.4%
58.32
2.2%
JV of GeoDigital International Corp. & Dhillon Aviation Pvt. Ltd.
M/s A.S.G & Co., Srinagar
M/s Accurate Enterprise, Navi Mumbai
M/s Ahuja Construction Engineers,Faridabad
112.18
4.3%
M/s Anarc Networking, Jaipur
14.58
0.6%
M/s Durian Industries Ltd, Mumbai
13.52
0.5%
M/s Ghulam Mohd. & Co., Karan Nagar,Srinagar
37.66
1.4%
9.80
0.4%
11.47
0.4%
9.48
0.4%
M/s Paresh Construction, Mumbai
45.02
1.7%
M/s Prakash Consruction, Ranchi
13.35
0.5%
M/s Sai Construction Co,, Patiala
62.09
2.4%
M/s Scope T&M Pvt. Ltd.
27.22
1.0%
M/s Upendra Prasad & Bros., Bokaro
15.10
0.6%
M/s Vaccum Plants & Instruments Mfg Co. Ltd
14.36
0.5%
Pan Intellcom Ltd
87.89
3.3%
Tejas Networks Ltd
461.13
17.6%
Telecommunication Consultants India Ltd
484.64
18.4%
2,627.02
3.9%
Alstom T&D India Ltd, Kolkata
98.88
100.0%
Total New Technology 98.88
0.1%
87,358.98
M/s Kamtron Systems Pvt. Ltd.
M/s M.S.Mokha,Bhatinda
M/s Omicron Energy Solutions Pvt Ltd
Total Others New Technology Grand Total Source: Power Grid, PL Research January 22, 2014
6
Capital Goods
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7

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