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Business News/ Market / Mark-to-market/  Sharp drop in Power Grid ordering raises concerns for capital goods firms
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Sharp drop in Power Grid ordering raises concerns for capital goods firms

From April to August, Power Grid's ordering outplunged by 76% from a year ago to Rs3,700 crore. Of this, nearly two-third was in transmission lines

The hope is that the government’s initiatives on rural electrification and higher outlays to railways should help capital goods firms garner fresh orders. Photo: MintPremium
The hope is that the government’s initiatives on rural electrification and higher outlays to railways should help capital goods firms garner fresh orders. Photo: Mint

Within the beleaguered power sector, transmission and distribution (T&D) has been the only saving grace, thanks to strong ordering out by Power Grid Corporation of India Ltd (PGCIL) over the last two years. But the start to FY2018 has not been great, with the order run-rate falling. 

From April to August, PGCIL’s ordering out plunged by 76% from a year ago to Rs3,700 crore. Of this, nearly two-third was in transmission lines. The balance was spread over sub-stations, transformers and railway electrification.

The fallout of lower orders is of greater concern to T&D firms in the capital goods universe. Kalpataru Power Transmission Ltd, KEC International Ltd, ABB Ltd and Siemens Ltd have about 10-20% of their order inflows from PGCIL. Others like Larsen & Toubro Ltd and Gammon India Ltd are also in the fray. So, lower ordering out would impact growth prospects for these firms, to the extent of dependence on PGCIL. In fact, brokerage firm Motilal Oswal Securities Ltd says that PGCIL orders in FY2018 till date were the lowest since 2013.

The bigger concern is that PGCIL’s project approvals, which indicate the likely orders ahead and precede the ordering out, also fell sharply. After vaulting 161% in FY2017 from the year before, approvals too are down by 87% so far in FY2018. A high base too might have impacted growth rates.

Be that as it may, the Street estimates that orders from PGCIL should be at FY2017 levels (around Rs28,000 crore), if not better. However, this necessitates a strong ramp-up in the next six months.

Meanwhile, capital goods firms are hopeful of fresh orders from state electricity boards too. The hope is that the government’s initiatives on rural electrification and higher outlays to railways should help capital goods firms garner fresh orders.

The last few quarters had been good for capital goods in the power T&D space. Stocks of these firms too did better than their counterparts in power generation, where excess capacity has brought ordering out to a standstill. The prospects, of course, will hinge on order flows as most of these firms have proved their mettle in execution.

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Published: 02 Oct 2017, 12:56 PM IST
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