Recommendation from Power - Transmission & Equipment Sector

Recommendation from Power - Transmission & Equipment Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

GE T & D INDIA LTD. : IN A POSITION OF ‘POWER’

HERE IS WHY
✓  Robust order book
✓  Huge scope for growth
✓  Focus on digitization and automation

GE T & D India Limited is the subsidiary of GE’s grid solutions business in India. It has become a dominant player in the power transmission and distribution business owing to more than 100 years of expertise in the domain. It has operations in all stages of the power supply chain and offers products and services which include power transformers, circuit breakers, gas-insulated switchgears, digital software solutions, etc. It has six manufacturing units to cater to the rising demand for grid equipment and services. The company reported net sales of Rs 3,452.37 crore in FY21 compared to Rs 3,158.7 crore in FY20. That is a growth of nearly 9.3 per cent.

While the economy was stressed in FY21, the company focused on niche areas and other geographies. The EBIDTA stood at Rs 236.08 crore in FY21 as against Rs 136.73 crore in the previous year. That is a growth of over 272.66 per cent. Its operating profit margin has improved by 1,160 bps from the previous year, reaching 4.2 per cent. Also, the PAT increased to Rs 60.32 crore in FY21, which saw a growth of 120 per cent as it had suffered net loss of Rs 302.56 crore in FY20. The net profit margin for FY21 stood at 1.7 per cent.

An increase of nearly 219.5 per cent can be seen in the cash flows from operating activities increasing from Rs 259.64 crore in FY20 to Rs 310.62 crore in FY21. Net sales for the quarter ended June 2021 stood at Rs 638.1 crore. That implies de-growth of 29.45 per cent on QoQ basis. It won orders amounting to Rs 473.6 crore which saw YoY growth of 6.5 per cent. The EBITDA exclusive of other income was Rs 1.43 crore which saw a decline of 96.8 per cent QoQ. The net loss number stood at Rs 19.260 crore, a 219.55 per cent drop on a QoQ basis. The company has been focused on leveraging digitalization with secured and reliable automation.

It had a robust order booking of Rs 4,590 crore as of March 2021 with which it is well-positioned to make its way forward. The company’s operational excellence was reflected by commissioning 32 air-insulated sub-stations and gas-insulated substations and by adding new capacity into the grid. On the returns front, the ROE hasn’t been impressive at 5.55 per cent but the ROCE has been decent at 12.05 per cent. The company has reduced its debt in Q1FY22 by Rs 24.5 crore, positioning its debt-to-equity ratio at just 0.2. The Government of India has shown strong support for the overall power sector in India by allocating Rs 90,000 crore stimulus. It is also focused on renewable energy.

Further, the government plans to achieve 175 gigawatts (GW) of renewable energy power generation by 2022 and 450 GW by 2030. As of March 2021, 92 GW has been achieved. This is in line with the company’s sustainable energy solutions programme. The Indian energy landscape is expected to undergo a paradigm shift with a positive outlook in the coming times. The buzzing electronic vehicles space is expected to create new opportunities for the company. Steady growth in electricity demand should ensure decent growth in transmission and distribution business in the near future. Considering all such factors, we recommend investors to BUY the scrip.

 

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