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MOSL: CAPITAL GOODS-Power Grid’s ordering down 51% YoY in 1HFY19-At lowest level since FY09

Capital Goods: Power Grid’s ordering down 51% YoY in 1HFY19; At lowest level since FY09

 

Power Grid Corporation of India (PGCIL) accounts for 45-50% of annual transmission capex in India, and is one of the largest customers for transmission equipment suppliers and contractors in the country. In this note, we analyze ordering trends of PGCIL in FY19 and its implications for Indian transmission equipment suppliers.

• Orders placed by PGCIL in 1HFY19 declined 51% YoY to INR22.4b. Notably, orders declined across key categories. Multiple segments; like conductors and rural electrification did not see any order finalization during 1HFY19.
• In 1HFY19, ordering in traditional segments like transformers and transmission line packages witnessed massive YoY decline of 74% and 76%, respectively. However, segments like Substation, and Railway saw a pick-up in 1HFY19 ordering. Substation orders in 1HFY19 have registered growth of 21% YoY (given extremely weak base in FY18 with a 91% YoY decline) whereas Railway Electrification saw 49% YoY growth.
• We expect PGCIL's ordering activity to remain weak in FY19: (1) given government capex is expected to slow down as we approach general elections in April-May 2019; and (2) as PGCIL's focus is greater on capitalization of the existing capital work in progress (CWIP). We expect PGCIL's capex to settle around INR100-150b for FY19 (at levels similar to FY18).
• However, we believe that state transmission companies will likely drive growth in transmission orders/capex in the 13th plan (2018-22E).