GE T&D India - Better-than-expected execution - ICICI Securities

GE T&D India witnessed a 12% YoY drop in revenues to Rs6.4bn during Q1FY21, which was better than expectations. Higher execution and Rs120mn in savings from cost-control measures resulted in EBITDA breakeven for the quarter. The focus on self-reliance and boycott of Chinese equipments are likely to support medium to long term market share under automation, statcom, GIS and transformers. Factoring in better-than-expected execution, we raise earnings by 18% and 17% for FY21E and FY22E, respectively, and maintain HOLD with a revised target price of Rs113 (earlier: Rs78).

- Better-than-expected execution and cost control limited the damage in earnings: Despite lockdown-related demand slowdown, the execution was better than expectation. The management is focusing on cost control and leaving no stone unturned towards the same. This has resulted in not booking any EBIDTA loss and this trend is likely to continue going forward. Current orderbook of Rs59bn (1.5x TTM sales) provides growth visibility.

- Anti-China stance by government to support market share: Although near-term order intake outlook is challenging, government has plans to discourage the share of Chinese equipments. We believe this will lead to an improvement in market share under transformers, statcom, GIS and automation-related segment for the company.

- Order intake expected to improve in H2FY21: Despite lockdown-related domestic slowdown, green energy corridor-related order is likely to finalise by September 2020. Certain state governments like Rajasthan will go ahead with ordering plans. Hence, the ordering activity is likely to bunch up during H2FY21.

- Working capital under control; however collection to remain stressed: Working capital is currently at March 2020 levels. Given the higher mix of renewable and state government orders under execution, we believe collections will remain under stress.

- Maintain HOLD due to near-to-medium-term challenges: The net debt increased sequentially to Rs4.6bn from Rs4.3bn in Q4FY20 and continues to be at elevated levels impacting the overall earnings. Though long-term opportunity in terms of green energy corridor, Leh-Ladakh HVDC, etc. exists, there are near-term growth challenges. Due to the recent stance of the government to discourage Chinese equipments, we believe, domestic market share of the company is likely to improve in long term. The recent run up of valuations is factoring in most of the upside, hence, we maintain HOLD with a revised target price of Rs113 (earlier: Rs78).

Shares of GE T&D India Ltd was last trading in BSE at Rs.102.2 as compared to the previous close of Rs. 107.5. The total number of shares traded during the day was 23142 in over 494 trades.

The stock hit an intraday high of Rs. 108.25 and intraday low of 102.15. The net turnover during the day was Rs. 2403341.

Source : Equity Bulls

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