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GE Power India - Strong execution and healthy growth prospects - ICICI Securities

Posted On: 2020-08-12 02:57:26

GE Power India (GEPIL) has reported flat revenue growth of Rs4.3bn in Q1FY21E, which is better than expectation, given lockdown-related headwinds. Given the higher contribution from FGD, raw material cost proportion is expected to be high; however, we believe execution traction will be strong. The new government policy to discourage Chinese companies will likely open new opportunities for GEPIL from private sector utilities that are yet to order FGD solutions. Strong executable orderbook of Rs77bn (~3x TTM sales) and order pipeline for FGD, both from NTPC and private companies, are healthy providing growth visibility. We believe the company will be one of the key beneficiaries of the emission norm-related opportunity in near to medium term. With new leadership, the company is focussed to tap long-term opportunity under services, flexibility and exports. Factoring in better-than-expected performance, we raise earnings by 56% and 4.5% for FY21E and FY22E, respectively, and maintain BUY with a revised target price of Rs640 (previously: Rs610).

- Healthy execution, all FGD sites are in active mode: All FGD project sites are in active mode and the company is able to effectively tackle migrant worker challenge by hiring locals. Lot 6 of NTPC tenders are due for finalisation and the company is confident to pick some orders from the same.

- Near-term cashflow challenges will impact balance sheet: High receivables and support given to MSME vendors had impacted cashflows, this is expected to be under stress in the near term. Higher mix of FGD jobs is likely to impact near-term cashflows. Hence, we estimate a reduction in other income and increase in interest cost; however, we believe, cashflow will normalise by FY22E.

- Key beneficiary of flue gas de-sulphurisation (FGD) solutions: The company, currently has 23% domestic market share by volume as per already finalised tenders. GEPIL is expecting the FGD order intake traction to improve given the current stance of government to discourage Chinese companies. Hence, the market share in the IPP utility market may improve for the company.

- Maintain Buy; strong orderbook and earnings growth visibility: Factoring in better-than-expected performance, we raise our earnings by 56% and 4.5% for FY21E and FY22E, respectively. The company has armed itself with various solutions to improve efficiency of boilers, reduce auxiliary consumption by power plants, improve heat rate, identify the optimum mix of imported and domestic coal etc. This will lead to ramping up of service business and unlocking long-term growth opportunities post FGD. We maintain BUY rating with a revised target price of Rs640 (previously: Rs610).

Shares of GE Power India Ltd was last trading in BSE at Rs.491.7 as compared to the previous close of Rs. 499.05. The total number of shares traded during the day was 4746 in over 572 trades.

The stock hit an intraday high of Rs. 510.1 and intraday low of 485.1. The net turnover during the day was Rs. 2357346.

Source: Equity Bulls

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