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March 16, 2018
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Capital Goods
ELECRAMA 2018‐Demand revival visible
Sector Update Kunal Sheth
kunalsheth@plindia.com +91‐22‐66322257
Shreyans Jain shreyansjain@plindia.com +91‐22‐66322256
Sensex v/s BSE Capital Goods Index
60708090
100110120130140
Mar‐17
May‐17
Jul‐17
Sep‐17
Nov‐17
Jan‐18
Mar‐18
BSE Capital Goods Sensex
Source: Bloomberg
Stock Performance
(%) 1M 6M 12M
Sensex (2.4) 2.8 12.2
BSE Capital
Goods Index (3.7) 1.9 14.4
ABB (11.1) (5.5) 11.7
Ashok Buildcon 1.7 14.2 16.6
Bharat Electronics (2.9) (12.5) 0.7
BHEL (9.1) (2.5) (23.8)
C.G. Cons. Elc. 0.9 5.7 16.3
Engineers India (5.0) 3.1 5.1
J.Kumar Infra. (8.5) 40.8 17.7
KEC Int. (1.8) 20.3 119.1
Cummins India (9.4) (17.9) (13.2)
Kalpataru Power (2.7) 29.9 59.0
KSB Pumps (2.9) 4.9 25.5
Larsen & Toubro (3.3) 5.9 22.6
Sadbhav Eng. (6.7) 26.1 27.9
Siemens (12.2) (19.5) (12.0)
Thermax 2.2 22.8 33.7
Voltas 6.9 14.7 60.2
We visited ELECRAMA 2018, which is the flagship showcase of the Indian Electrical
Industry ecosystem with ~900‐1000 corporate participants (over 221 Transformers
companies, 321 Cables & Conductors companies, 202 Control & Switchgear
companies and 113 Instruments & Instrumentation companies etc were present).
Key takeaways are as follows:
Industry participants indicated improving outlook: The overall tone from most
participants was positive on reviving demand/improving public spend.
Interaction with most players indicated improved traction in demand
environment over the last one year driven across T&D/Industrial/light electrical
spectrum.
Demand for Industrial products seeing healthy traction: Our interaction with
different manufacturers of motors/industrial drives/pumps suggests that there
is demand revival. Few sectors where demand has seen some positive traction
are steel/cement/Oil&Gas/Railway/water etc. Implementation of IEE norms and
Mandatory ISI marking is leading to shift to organized markets in motors.
Light electrical‐confident of sustained growth: Light electrical companies
comment that seeing demand uptick since last 5‐6 months in products like
MCB/switchgears /wires etc as builder’s rush to complete pending projects due
to RERA. Expect Housing for all also to be good demand driver in medium term.
Wire & cable demand players are expecting strong growth to continue led by
uptick in public spending in infrastructure.
Competition is likely to heat up as lot of player’s dominant in wire & cables
(Polycab/RR Kabel/Finolex) are trying to extend brand and get into aligned
segment of MCB/switchgear/fans/appliances. We believe scale up in appliance
is a challenging task given that channel is different from traditional channel for
wires.
Digital/automation key themes displayed by larger players, MV product seeing
tailwind from SEB demand: Large players like ABB/SIEMENS showcased
capability on the digital/automation/IoT with wide array of products indicating
future trends and also taking market in that direction. Lot of players also
displayed product on ‘Make in India’ theme. Market participants indicate that
States capex on system upgradation and inter‐state transmission line is driving
demand for HV/MV products/substation(GIS)/automation etc. Most companies
also highlighted improving outlook and demand from international markets like
Africa, SAARC region etc.
In the lower KV range and more commoditised products
(Cables/Transformer/Conductor/Switchgear etc.) the spend on RE/IPDS is
driving demand due to governments serious push to achieve the electrification
targets. The commentary across players indicates that competition continues to
be very tough across segments.
March 16, 2018 2
Capital Goods
Renewable segment going through consolidation, railway/metro going strong.
Policy uncertainty/aggressive bidding in solar/wind has led to slowdown in
spending, however most participants long term potential remains strong and
current phase is temporary and industry should return back to growth next year.
Railway/metro capex continues at very healthy pace and all players were
confident of trend to continue for next few years.
Smart meter: The government is coming out with large tender for 5mn meters
floated by EESL for smart meters. Companies are optimistic about increase in
smart meter tendering given the government’s focus on reducing T&D losses.
Outlook: Step up in SEB capex and government focus on key schemes like
RE/IPDS is driving demand for T&D. Strong uptick in Rail/Metro capex and
recovery in pockets of industrial spend are likely to act as tailwind. While
demand outlook is improving, competitive intensity continues to be high.
ABB/KEC/Kalpataru power are out preferred play in T&D/Industrial space.
Exhibit 1: PL Coverage Valuation
Companies Price (Rs)
TP (Rs)
Rating Mcap
(Rs bn)
P/E P/B EV/EBITDA ROE
FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20
Larsen & Toubro 1,268 1,556 BUY 1,773.8 27.1 23.9 20.9 3.0 2.7 2.5 21.9 20.0 18.6 12.2 12.1 12.4
BHEL 86 89 Reduce 316.7 44.9 23.5 18.5 0.9 0.9 0.9 17.8 9.3 8.2 2.1 3.8 4.7
Siemens 1,103 1,401 ACC 392.8 55.3 42.2 36.9 6.5 6.0 5.6 35.3 27.2 24.0 12.3 14.9 15.7
ABB 1,341 1,747 ACC 284.1 67.6 54.7 43.7 8.3 7.4 6.5 38.4 29.0 24.1 12.9 14.3 15.8
Cummins India 768 967 Buy 212.8 31.2 27.0 23.8 4.9 4.5 4.1 27.5 24.4 21.1 16.8 17.4 18.0
Bharat Electronics 149 211 Buy 333.6 19.7 16.4 14.9 3.0 2.6 2.2 12.4 10.3 8.9 19.1 16.9 15.8
Thermax 1,165 1,309 ACC 138.8 46.4 36.7 29.4 4.6 4.2 3.8 28.5 22.4 18.2 10.4 12.1 13.7
Engineers India 161 204 ACC 101.5 24.7 24.3 19.7 3.2 3.0 2.8 17.6 17.5 13.1 13.9 12.9 14.8
Voltas 628 702 ACC 207.8 36.0 33.3 28.8 5.6 5.0 4.5 30.5 26.0 22.4 16.5 15.9 16.4
KEC International 386 413 BUY 99.2 24.2 20.7 18.2 5.2 4.2 3.4 11.8 10.0 8.9 23.5 22.4 20.8
Kalpataru Power 455 528 ACC 69.9 20.3 17.3 15.5 2.6 2.3 2.1 12.5 10.5 9.2 13.0 13.7 13.7
KSB Pumps 775 925 ACC 27.0 40.1 28.2 24.3 4.3 3.8 3.5 23.9 17.0 14.8 11.3 14.3 14.9
Sadbhav Eng. 383 475 BUY 64.9 18.8 16.5 15.3 3.5 3.1 2.7 17.9 15.1 13.2 12.9 13.0 12.5
Ashoka Buildcon 226 287 BUY 42.3 43.3 26.3 15.3 2.1 2.1 2.0 10.0 7.9 6.9 2.6 4.3 7.1
J.Kumar Infra 302 403 BUY 22.9 18.8 15.2 12.4 1.6 1.4 1.3 8.1 6.6 5.6 8.6 9.9 11.1
Source: Company Data, Bloomberg, PL Research (All prices as on February 20, 2018)
March 16, 2018 3
Capital Goods
Light Electrical Industry
Lot of players dominant in the wires & cables segment (Polycab/RR Kabel/Finolex) are trying to extend their brand and get into
aligned segment of MCB/switchgear/fans/appliances
March 16, 2018 4
Capital Goods
Players like Polycab and RR Kabel are entering the highly competitive Consumer Durables segment, displaying their wide array of
products
March 16, 2018 5
Capital Goods
MCB
Companies have come out with Smart
MCBs with Three level indicators, High
speed mechanism, safety shutters,
independent manual structure etc.
Havells has even come out with new
panel designs for their Distribution
boards
March 16, 2018 6
Capital Goods
Motors and Pumps
IE3 motor with Smart Sensors
Motors and Pumps with Compuslory ISI mark being made mandatory now.
March 16, 2018 7
Capital Goods
Digital Automation
Companies like ABB and Siemens showcased their
technologies going fully digital as well as smart solutions.
ABB displayed the Digital grid which is stronger, smarter and
greener. Siemens displayed their Cyber Security and
Mindspace Fleet Manager technology
March 16, 2018 8
Capital Goods
Make in India
Crompton Greaves displayed their “Made in India” Circuit Breakers upto 800kv which can be used by Utilities across the world
and Medium Voltage Swtichgears and Propulsion Systems.
TBEA displayed their growth in phases and how their MVA sales of Transformers and Reactors by “Making in India”.
March 16, 2018 9
Capital Goods
UDAY Scheme
UDAY is a 3 year long programme where performance of the States is contingent to
the time spent under UDAY, as different states have joined UDAY at different points
in time.
Early results under UDAY are encouraging, with some distinct benefits on operations.
Going forward, improvement in metering to enhance the performance.
Performance slack in some states may be attributed to interlinked factors like lead
time of interventions, data‐lag and seasonality of operations etc.
UDAY is a supply side intervention which aims to release the latent demand, that
exists in the system due to short supply of power to the consumers.
Under UDAY, total energy billed by DISCOMs increased by 9% in FY17* over FY16,
indicating a considerable growth in consumption, which in the past years had grown
around 5‐6%.
24X7 Reliable & Affordable Supply
Commercially Viable Discoms
Eliminate stress of Banking Sector from DISCOM exposure
Exhibit 2: Post UDAY Improvement Trend
1364.51378.8
1408.91433.1
1456.41480.8
1503.71523.7 1530.3
1250.0
1300.0
1350.0
1400.0
1450.0
1500.0
1550.0
Mar‐16 Jun‐16 Sep‐16 Dec‐16 Mar‐17 Jun‐17 Sep‐17 Dec‐17 Mar‐18
Post UDAY Improvement Trend
Source: GoI data, PL Research
March 16, 2018 10
Capital Goods
Exhibit 3: Electricity Access to un‐connected Households (Nos in Lakh)
13.1
3.8
0.1 0.0
5.1
7.6
3.3
0.1 0.0 0.00.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Maharashtra Telangana Himachal
Pradesh
Meghalaya Assam
Target Achievement
Source: GoI data, PL Research
Exhibit 4: Key improvement under UDAY
Parameters FY16 FY17 Target FY18
ACS‐ARR Gap 0.6 0.42 0.2
(Rs. / kWh)
AT&C Losses (%) 21 20 17
Source: GoI data, PL Research
March 16, 2018 11
Capital Goods
Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY)
Government of India has launched the scheme “Deendayal Upadhyaya Gram Jyoti
Yojana” for rural electrification. The erstwhile Rajiv Gandhi Grameen Vidyutikaran
Yojana (RGGVY) scheme for village electrification and providing electricity
distribution infrastructure in the rural areas has been subsumed in the DDUGJY
scheme.
Under DDUGJY‐RE, Ministry of Power has sanctioned 921 projects to electrify
1,21,225 un‐electrified villages, intensive electrification of 5,92,979 partially
electrified villages and provide free electricity connections to 39.7mn BPL rural
households.
Exhibit 5: Funding Mechanism of DDUGJY
Agency Nature of support
Quantum of support
(Percentage of project cost)
Other than Special Category States
Special Category States #
Govt of India Grant 60 85
Discom Contribution* Own Fund 10 5
Lender (FIs/ Banks) Loan 30 10
Additional Grant from GOI on achievement of prescribed milestones Grant 50% of total loan
component (30%) i.e. 15% 50% of total loan
component (10%) i.e. 5%Maximum Grant by GOI (including additional grant on achievement of prescribed milestones)
Grant 75% 90%
Source: Industry, PL Research # Special Category States (All North Eastern States including Sikkim, J&K, Himachal Pradesh, Uttarakhand) * Minimum contribution by Discom(s) is 10% (5% in case of Special Category States). However, Discom(s) contribution can go up to 40% (15% in case of Special Category States), if they do not intend to avail loan. In case, the Discom(s) do not avail loan, the maximum eligible additional grant would be 15% (5% in case of Special Category States) on achievement of prescribed milestones. The loan component would be provided by REC or by other FIs/Banks.
March 16, 2018 12
Capital Goods
Exhibit 6: Electrification and last mile connectivity: Outlay Rs425.6bn
Source: GoI data, PL Research
March 16, 2018 13
Capital Goods
Exhibit 7: DDUGJY Electrification Status
State Total Electrified Uninhabited Remaining
Odisha 3,474 2,896 571 7
Assam 2,892 2,732 150 ‐
Bihar 2,747 2,642 105 ‐
Jharkhand 2,525 2,467 58 ‐
Arunachal Pradesh 1,578 797 16 765
Uttar Pradesh 1,529 1,476 53 ‐
Chhattisgarh 1,080 985 ‐ 95
Meghalaya 912 900 12 ‐
Rajasthan 495 427 68 ‐
Madhya Pradesh 472 402 49 21
Manipur 276 269 3 4
Jammu & Kashmir 134 45 ‐ 89
Nagaland 82 78 4 28
Uttarakhand 76 46 2 3
Mizoram 58 51 4 ‐
Karnataka 39 39 ‐ ‐
Himachal Pradesh 35 28 7 ‐
Tripura 26 26 ‐ ‐
West Bengal 22 22 ‐ ‐
Total 18,452 16,328 1,102 1,012
Source: GoI data, PL Research
March 16, 2018 14
Capital Goods
Saubhagya Scheme
Government of India launched the ‘Pradhan Mantri Sahaj Bijli Har Ghar Yojana’ –
Saubhagya to achieve universal household electrification in the country with the
total cost of Rs163.2bn including a Gross Budgetary Support (GBS) of Rs123.2bn from
the government during the entire implementation period.
Exhibit 8: Electrification Status as on date
Source: GoI website, PL Research
March 16, 2018 15
Capital Goods
Exhibit 9: Saubhagya Scheme
Source: GoI website, PL Research
Exhibit 10: Saubhagya – Household progress since 10th October 2017 (in lakhs)
Source: GoI website, PL Research
March 16, 2018 16
Capital Goods
Exhibit 11: Saubhagya – un electrified Household (as per LOI)
Source: GoI website, PL Research
March 16, 2018 17
Capital Goods
Integrated Power Development Scheme
An integrated scheme for urban areas with outlay Rs 270.5bn, targeting IT
Enablement (Quality and Reliability) and System Strengthening
Achievement under IPDS
IT enablement completed in 1367 towns; fresh sanctions for 1932 towns
amounting to Rs 9.85bn
Old System strengthening projects completed in 970 towns; fresh sanctions for
3616 towns
Expected to boost industry performance, as IPDS directs interventions in urban
areas where most industrial hubs/ centres are located
Rs270.52bn sanctioned under IPDS ‐ Rs262.36bn System strengthening + Rs
9.85bn IT + Rs 690mn Smart meters for Old Kashi Pilot
System Strengthening projects for 3616 towns – Rs262.36bn sanctioned
including Rs163.14bn as GOI Grant, Rs.48.17bn released
Exhibit 12: Quantum of work envisaged for System Strengthening in Urban sector
Milestone Name Unit Sanctioned Quantity Awarded QuantityCompletion as on
18.01.2018
% Physical Progress Achieved w.r.t.
awarded Quantity
33/11 KV Substation
New No. 1,825 1,591 168 11%
MVA 12,998 11,730 1,124 10%
Augmentation No. 2,145 1,537 414 27%
MVA 8,675 7,775 1,890 24%
Lines
LT Line CKm 123,653 159,981 31,794 20%
11 KV Line (Excluding feeder segregation)
CKm 111,412 98,252 14,986 15%
33&66 KV Line CKm 25,183 23,486 1,953 8%
Feeder Segregation Feeder Segregation (excluding 11 KV New Lines)
CKm 159,571 147,703 11,679 8%
Distribution Transformers
Distribution Transformers
No. 385,638 360,849 31,108 9%
MVA 12,686 12,598 2,172 17%
Energy Meters
Consumer Nos 15,160,243 10,371,200 3,242,446 31%
DTR Nos 377,120 331,082 32,665 10%
11 KV Feeder Nos 29,336 14,817 3,822 26%
Source: GoI data, PL Research
March 16, 2018 18
Capital Goods
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
45.0% 43.4%
11.6%
0.0%0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% of Total Coverage
BUY : Over 15% Outperformance to Sensex over 12‐months
Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months
Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month
Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. Kunal Sheth (MBA), Mr. Samir Bendre (BE,MBA), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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