In this article, we will look at “One transmission and power stock with strong order book to buy now” and will have a quick overview of transmission and power industry.
Leading research and credit rating agencies have given a thumbs up to India’s transmission and power industry. This is being supported by strong improvement in thermal PLF level in FY23, which should continue to sustain in FY24 and fall in dues from state distribution utilities (discoms). PLF improvement stemmed from strong recovery in electricity demand growth in India. All-India thermal PLF level should improve from 58.9% in FY22 to 64.0% in FY23 and then further to 65.5% in FY24. These improvements are likely to stem from healthy demand growth and limited thermal capacity addition. Full-year demand growth for FY23 has been pegged at 9.5-10%, which might moderate in FY24, though should remain healthy at 5.5-6.0%. As on March 2023, India had total thermal installed capacity of 237.2 GW. Out of this, ~57.7% of thermal power should be obtained from coal and remaining from Lignite, Diesel, and Gas. Private sector in India’s power industry generates 50.5% of the country’s power, with States and the Centre generating ~24% and ~25.4%, respectively.
Experts believe that Indian power market should be able to compound at over 3% during FY22-FY27. As of now, India’s power market seems to be going through significant transformation phase due to efforts adopted by Indian government in a bid to improve electricity access in the country and its plans to improve share of renewables in India’s power generation mix.
Range of factors, including population growth in India, should act as principal growth enablers for India’s power market. Degree of urbanization in India should have significant implications on trend of energy consumption due to rise in demand from industries utilising energy for construction and manufacturing. However, significant investments are required to modernize power generation, transmission, or distribution networks. Policies framed by Indian government and support for electricity generation should stem the market growth during forecast period. India has sufficient availability of solar irradiance and receives solar energy across the year which has created significant opportunities.
With this in mind, let us have a look at one transmission and power stock with strong order book to buy now.
Bharat Heavy Electricals Limited
The company is India’s leading engineering and manufacturing enterprise in energy and infrastructure sectors and was established in 1964. It has been categorised as a leader in power equipment manufacturer on the global basis and it was one of the earliest and leading contributors to building an Aatmanirbhar Bharat.
In FY23, BHEL sustained its momentum which was achieved in prior fiscal, and it ended the year with significant momentum in growth drivers. During FY23, the company saw revenue from operations of INR23,365 crore, exhibiting a rise of 10% on year-over-year basis. It achieved PBT of INR450 crore, and PAT of INR448 crore with continued focus on cost management.
Strategic shift of the company to project-centric operations and focus on optimisation of project execution over previous 4 years has enabled the company to pay rich dividends. Construction tonnage of the company in projects throughout the country increased by massive 100% in FY23 in comparison to FY20, exhibiting increase in pace and efficiency of project execution.
The company has been successful in maintaining liquidity because of improved execution focus as realisation from current year billing increased from 59% to 86% over previous 4 years. During FY23, the company commissioned ~1,580 MW of power generating equipment apart from synchronising
captive/solar projects of ~298 MW. As a result of this, its global installed power generating capacity grew up to 195 GW.
BHEL was able to secure orders worth INR23,548 crore (excluding taxes) in FY23 and the orders were from power, industry and export segments. As a result of this, the company’s total order book was of more than INR91,336 crore (excluding taxes). This outstanding order book has crossed INR1,00,000 Crore (excluding taxes) because of the finalisation of Vande Bharat trainset order in April 2023. Because of the diversification strategy, BHEL has leveraged Pressurised Fluidised Bed Gasification technology for coal gasification. The company has entered into MoUs with Coal India Limited and NLCIL regarding development of coal gasification projects.
On August 25, 2023, BHEL announced that it has received an order worth INR2,241.86 crore which involves designing, engineering, manufacturing, along with supply, erection and commissioning of Electro-Mechanical package.
Previously, the company secured an order worth INR4,000 crore for equipment which includes boiler, turbine, generator and associated auxiliaries. This order of the company encompasses control and instrumentation components. Order came from Mahan Energen Limited, which was earlier recognised as Essar Power MP Limited, is the wholly-owned subsidiary of Adani Power Limited.Thistransmission and power stock with strong order book seems to have healthy outlook given its market size and favourable sectoral dynamics.
A range of initiatives which have been taken at national level, in areas of infrastructure development and technology self-reliance, should be able to create several opportunities in capital goods and energy sectors for the company. The company continues to expand business scope in thermal-related areas and it has seen strong progress regarding development of in-house solution for flexible operation of coalfired power plants. Regarding diversification, it continues to target minimum 50% of its business to come from non-coal businesses and has seen some successes in this area.
This transmission and power stock with strong order book has made technology agreements with M/s General Electric Technology GmbH Switzerland focused on enhanced rights of existing /uprated and new gas turbines models, M/s Sumitomo SHI-FW which is targeted on subcritical and supercritical Circulating Fluidised Bed Combustion (CFBC) Boilers capable of firing wide range of fuels, and M/s ABB regarding underslung propulsion equipment for railways segment. This should help the company in generating orders in diversified businesses from both the markets i.e. domestic and international and should help in making BHEL a self-sufficient in state-of-the-art technologies over upcoming years.
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