MOSL: CAPITAL GOODS-PGCIL ordering declines 76% YoY in YTDFY18-At lowest levels since FY13

​CAPITAL GOODS: PGCIL ordering declines 76% YoY in YTDFY18; At lowest levels since FY13

• Power Grid Corporation of India (PGCIL) accounts for 45-50% of the annual transmission capex in India. It is amongst the largest customers for Indian transmission equipment suppliers and contractors. We analyze the ordering trends by PGCIL in YTDFY18 and implications for Indian transmission equipment suppliers.
  
• During April-August 2017, PGCIL placed orders worth INR37b (down 76% YoY). There has been a decline in orders across categories and large ticket orders have been virtually absent.
  
• Substation ordering declined 94% YoY (April-Aug17 ordering included INR58.1b order for Raigarh-Pugular HVDC line), transmission line ordering declined 37% YoY, and transformer segment ordering declined 50% YoY.
  
• Despite weak ordering in the April-August 2017 period, we expect PGCIL's orders to pick up in 2HFY18, with annual ordering stabilizing at INR200b-220b. In our view, states are likely to drive the growth in transmission orders/capex under the 13th Plan (2018-2022E).
  

Power Grid orders at INR37b in YTDFY18, down 76% YoY

• Orders placed by Power Grid Corporation of India (PGCIL) in YTDFY18 stood at INR37b (down 76% YoY), the lowest since FY13, primarily due to the absence of large ticket orders. Of the total orders, transmission line orders constituted 63%, substation orders 16%, transformers 9%, and railway electrification orders 9%. PGCIL has started ordering for rail electrification projects from FY18 and has placed orders worth INR3.4b.
  
• Investment approvals by PGCIL in FY17 were at INR362b (+161% YoY); this drove a pickup in orders in FY17 (+68% YoY). However, YTDFY18 has seen a dip in approvals by 87% and this is reflected in the fall in orders, as well. Despite the weak start, we expect PGCIL to continue to order INR200b-220b annually over the 13th plan (2018-2022E). The bigger opportunity lies with the states, where spending in the 13th plan is projected to jump to INR1.6t (INR0.6t in 12th plan).