Three lesser-known smart meter stocks for this record-high booming market

Recent trends indicate that companies securing smart meter contracts often see their stock prices hit upper limit, indicating strong market enthusiasm. (Image: Pixabay)
Recent trends indicate that companies securing smart meter contracts often see their stock prices hit upper limit, indicating strong market enthusiasm. (Image: Pixabay)

Summary

  • Should you consider these smart meter stocks now? Find out

In recent months, the Indian stock market has showcased remarkable performance, leading global observers to speculate that India may be on the brink of a sustained growth phase.

The Nifty index has hit unprecedented highs multiple times this year, signalling robust market confidence.

This surge is attributed to various factors, including Prime Minister Narendra Modi's focus on infrastructure and the rising influence of artificial intelligence (AI), which has attracted substantial foreign investment to India.

One sector poised for significant attention from international investors is the smart metering industry.

Smart meters are sophisticated devices that monitor electricity usage details like voltage, current, and power factor, are at the forefront of this interest.

Recent trends indicate that companies securing smart meter contracts often see their stock prices hit upper limit, indicating strong market enthusiasm. While larger firms like Tata Power and Genus Power receive considerable attention, we believe smaller entities also have substantial growth opportunities.

Here, we highlight three under-the-radar Indian smart meter stocks worth watching out for.

#1 India Power Corp

India Power Corp, with a market valuation of 22 billion, ranks among India's top ten power distributors. The company has embraced digital innovation, incorporating smart meters, IoT devices, and three-phase smart meters across its operations. It has also diversified into thermal, wind, and solar power generation.

A significant achievement for India Power is a contract to install 350,000 smart meters across five towns in Madhya Pradesh. Since the company’s core revenue comes from the power distribution business, it has been maintaining high operational efficiencies.

The stock price has shot up due to smart metering theme picking up and also because some of the litigations have been ruled in the company’s favour.

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Despite challenges, including legal disputes and concerns over promoter share pledging, the company shows promising signs of growth, thanks to debt reduction, operational efficiency, and strategic expansions.

With a market cap of 22 billion (bn), India Power Corporation (IPC) is among the top 10 power distribution companies in India.

It’s one of the early adopters of digital transformation in the utility sector. India Power Corporation has adopted smart meter solutions with consumers, IoT devices in its distribution transformers, and even 3-phase smart meters in its grid.

It also generates power in the thermal, wind as well as solar segments.

One of its biggest contracts includes implementing 350,000 smart meters in five towns of Madhya Pradesh.

Since the company’s core revenue comes from the power distribution business, it has been maintaining high operational efficiencies.

The stock price has shot up due to smart metering theme picking up and also because some of the litigations it was facing have been ruled in the company’s favor.

What’s concerning though is that promoters have pledged most of their holding, which many investors consider as a red flag.

The company does have some things working in its favour though. It has reduced debt in the previous financial year while it has posted steady growth in recent quarters.

Declining power purchase costs and consistent addition of new customers are the two factors working for the company.

Going forward, the company is hoping for strategies acquisitions of utilities and roll out more smart meters in the next 5-6 years.

#2 Kaynes Technology

Kaynes Technology, though better known for its electronic manufacturing services, plays a crucial role in the smart metering sector. Its mainstay products include printed circuit boards, but it has ventured into manufacturing smart energy meters and other high-tech products such as streetlight controllers, air data sensors, thermal imaging systems, among others.

The company has a market cap exceeding 180 billion.

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The company stands out for its profitability and has embarked on significant investments, including a semiconductor manufacturing facility in Telangana to be built at an estimated cost of 28 billion, signalling its commitment to growth in smart metering and beyond.

The company’s substantial order book, valued at more than 30 billion, will be executed over the next 18-20 months, indicating promising revenue trajectory.

#3 Techno Electric & Engineering

Techno Electric & Engineering, with a market cap exceeding 87 billion, specializes in EPC services, asset management, and maintenance in the power sector.

The company has made strides in rural electrification and smart metering, with recent orders significantly boosting its growth prospects and stock performance.

The company had an order to install 2 lakh smart meters of 2 billion in Jammu & Kashmir, while last month, Techno Electric secured new orders worth 17.5 billion for smart metering and transmission projects.

No wonder shares have shot up in the past one month.

As of November 2023, it had an unexecuted order book worth 44 billion, which has gone up post the recent order wins. The company is expects orders worth 40 billion in the coming quarters.

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Looking ahead, Techno Electric anticipates further orders and aims to continue its strong financial performance, attracting continued interest from foreign investors.

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In Conclusion

So these were some of the relatively lesser known stocks from the smart metering industry.

You can also take a look at the detailed editorial we covered in September 2023 which has a list of nine smart meter stocks.

Please note, we're not making any recommendations throughout this article. The idea is to keep a watch on these companies and see how they're progression on the smart metering front.

A good way to select stocks is to look for these parameters:

⦁ Stocks with nil or no promoter pledging

⦁ High promoter stake(preferably above 45%)

⦁ Low debt to equity(preferably below 0.8 times)

⦁ High RoE and RoCE (preferably above 15%)

⦁ Low cash conversion cycle (below 100 preferably) and low receivable days (preferably below 90).

⦁ And of course, also look for consistency in operating profit margins.

Happy Investing!

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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