The Hindu Business Line : Utilities’ order flows to revive T&D cos

Areva T&D India’s agreement for design and construction of substations with the Maharashtra State Electricity Transmission Company further builds the case for a revival in spending in the power transmission and distribution (T&D) space.

The spending is largely driven by State transmission utilities and Power Grid Corporation, perhaps due to bunching up of orders after some hiatus closer to the general elections.

Areva T&D, in alliance with Jyoti Structures, has won orders for 36 substations; the former’s share is pegged at Rs 900 crore and Jyoti’s orders at Rs 833 crore. These companies are not the only ones to benefit from an increased spending in the T&D space. KEC International for instance announced award of orders worth Rs 780 crore (including export orders) in August, while Kalpataru Power Transmission bagged orders worth Rs 1,400 crore from two State-run transmission utilities alone. These orders hold significance as companies in the T&D space put up tepid/weak earnings in the June quarter and showed little signs of strong growth in their order book then. The stocks of these companies were nevertheless significantly re-rated in the initial leg of rally between March and June. The current pick up in orders provides some comfort on the earnings visibility front, what with market valuations going much ahead of fundamentals.

Power Grid spending

The spending by Power Grid also gained clarity after the recent $1-billion loan received by the company from the World Bank. Overall Power Grid is expected to spend Rs 55,000 crore over the Eleventh Five Year Plan (2007-2012) while State transmission utilities are expected to come up with projects worth Rs 65,000 crore. However, competition from foreign players, especially in the central projects, could mean pricing pressure for the Indian players.

Areva T&D had claimed that prices of substation products have been on a decline since January. If this is the case with other players too, profit margins could witness some pressure, despite higher volumes.

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