The Hindu Business Line : Transformer manufacturing companies fully charged

The stocks of transformer companies have been heading north and analysts bet on the long-term growth of this sector if the power generation projects are on track. According to them, transformer manufacturing companies are expected to show robust growth on the back of higher demand for power generation and increased capacity addition.

The next five years will see a substantial capacity addition with the Government planning to add around 70,000 MW of power.

Voltamp Transformers, Emco Ltd, Indo Tech Transformers Ltd are expected to be the major beneficiaries of the increased demand in the power sector.

"Transformer capacity of 7 MVA will be required for transforming one mega watt of power. With the plan to generate around 70,000 MW of power in the next five years, the dependence on transformers will be high especially in the rural areas. Owing to the high density, the transformers go off, and there is a need for new transformers," said Mr Hitul Gutka, power analyst, India Infoline Ltd. He added that the rural electrification initiative of the Government would lead to rising demand for transformers.

The growth in infrastructure and housing in India will also generate further demand for power. The number of new malls, hotels and IT parks being developed will also result in large consumption of power, say analysts.

"Almost one fourth of the total investment in power generation goes for transformers, which indicates that over the next five years, at least Rs 1 lakh crore should be spent on the transformer industry citing a huge opportunity," said Mr Mehul Mukati, power analyst, Emkay Shares and Stock Brokers Ltd. He added, "In the next five years, the country will add as much as 60 per cent of power generated in the past fifty years."

Voltamp Transformers is poised for a strong performance with a varied product portfolio and a low dependence on State Electricity Boards (SEBs), said analysts tracking the sector. The company's stock touched a new 52-week high on Friday at Rs 735.10 but closed lower by 0.19 per cent at at Rs 697.40 on the BSE.

Analysts are also bullish on Emco Ltd, but they however feel that the large dependence on Indian SEBs may be a hindrance. However, the company will increase the transformer manufacturing capacity from 10,000 mVA to 20,000 mVA by next year, said a report from Ask Raymond James. The stock of the company has been almost 11.6 per cent up month-on-month to close at Rs 783 on BSE on Friday.

The industry will record average margins of around 16 per cent with different companies offering varied products, said Mr Gutka.

Slowdown in infrastructure spending and volatile prices of raw materials, mainly copper are a cause of concern for the transformer industry. With the rise in copper prices, the margins of companies may be affected, said analysts.

A setback to the upward march in the sector may be the cost of debt and the regulatory cap on lending for the sector by Indian banks. The companies then will have to turn towards foreign institutions for borrowing money, said Mr Mukati.

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