Markets
Tower play: Will these four stocks electrify investors?
Summary
- With the government having unveiled an ambitious ₹9.15 trillion investment plan for central and state transmission systems by 2032, all four of these companies are involved in significant transmission tower projects.
India's remarkable ascent to the world’s fifth-largest economy has been driven by growth in various sectors including renewable energy, e-commerce, and power transmission and distribution, among others.
The power transmission and distribution sector has seen substantial growth in recent years, positioning itself as a key player in the nation's economic progress. As a result, stocks of transmission tower manufacturers have been in demand.
This article delves into four companies involved in significant transmission tower projects.
#1 L&T
Larsen & Toubro (L&T) is a leader in the power transmission and distribution sector, offering comprehensive solutions that span design, manufacturing, supply, construction and commissioning for overhead high-voltage transmission lines, substations, and distribution projects. This includes specialised services such as railway electrification and project electrification, both in domestic and overseas markets.
With decades of engineering and construction expertise, L&T has become a key player in India’s rapidly expanding transmission and distribution sector and has consistently set benchmarks on capacity, complexity and execution speed.
Through its dedicated business segments, L&T provides integrated solutions for a wide range of power transmission and distribution initiatives. L&T also operates in key international markets including the Middle East, Africa and ASEAN, where it has earned a solid reputation and a significant market share.
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In July, L&T’s power transmission & distribution division received orders to execute two 765 kV double-circuit transmission line packages. These projects are part of efforts to evacuate power from the Jaisalmer/Barmer Renewable Energy Zone in Rajasthan to substations in Madhya Pradesh for interconnections.
L&T also secured major orders in the Middle East. In Saudi Arabia it was entrusted with building a 380 kV substation and associated overhead line segments. In the UAE it won contracts to construct a 220 kV substation and three 132 kV substations to meet the growing electricity demand in Dubai and Abu Dhabi.
Coming to its financials, L&T has experienced notable growth over the past five years.
L&T’s revenue and net profit have grown at a compound annual rate of 10.3% and 10%, respectively, over the past five years. RoCE and RoE have averaged 13.3% and 17.1% over this period.
#2 KEC International
KEC International is a major player in the power transmission space, specialising in engineering, procurement and construction (EPC) services.
It operates across several sectors including power transmission, distribution, railways and civil infrastructure. Its expertise in designing and executing large-scale transmission projects has made it one of the top contributors to India's power grid expansion.
On 27 November it secured turnkey orders worthRs 1,700 crore in the transmission & distribution sector from Power Grid Corporation of India Ltd (PGCIL). The projects involve designing, supplying and installing 765 kV transmission lines and gas insulated substations.
With these, the company’s order intake in 2024 stands atRs16,300 crore, up 60% from last year.
Its T&D business received orders for a 400 kV transmission line project in Oman and the supply of towers, hardware and poles in the Americas. The civil division won contracts in the industrial segment in India.
On the financial front, KEC International has seen impressive growth over the past five years.
Sales have grown at a compound annual rate of 12.6% over the past five years, but net profit has yet not recovered. Returns have been strong, with the RoE and RoCE averaging more than 11.8% and 27.8%, respectively.
The company's growth strategy includes expanding in international markets, particularly in the Middle East, Africa and South Asia. Its continued investment in new technologies and infrastructure is expected to further strengthen its competitive position.
#3 Kalpataru Projects International
Kalpataru Projects International Ltd. (KPIL), formerly known as Kalpataru Power Transmission Ltd., is a significant player in the global power transmission and infrastructure industry.
It specialises in EPC projects for power transmission and distribution networks, oil and gas pipelines, railways, and civil infrastructure projects.
KPIL is known for executing complex projects in domestic and international markets, helping to develop and maintain critical infrastructure systems. In the transmission business, it focuses on building high-voltage transmission lines, substations and distribution networks to connect power generation sources to the end-users.
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The company has been involved in several high-profile projects across India, Africa, the Middle East and Latin America, contributing to the development of global power grids. It has also been involved in building substations that are essential for regulating and distributing electricity.
In FY24, the company achieved its highest-ever consolidated revenue of ₹19,630 crore and an operating profit of ₹1,630 crore. Net income grew 18.6% from the previous year. The company earns around 39.9% of its revenue from the transmission and distribution sector.
From FY20 to FY24, the company achieved a compound growth rate of 12.6% in sales, while net profit increased at a 7.2% CAGR. Returns have also been strong, with RoE and RoCE averaging more than 12.2% and 23.1%, respectively.
The transmission and distribution segment's outlook has improved significantly over the past 12 to 15 months owing to increasing adoption of renewables and rising power demand.
Going forward, it aims for revenue growth of more than 20%, with pre-tax profit (PBT) margins closer to 5%. Visibility of tenders in the domestic transmission and distribution market is estimated to be around ₹50,000 crore annually for the next two to three years.
#4 Skipper
Established in 1981, Skipper Ltd has grown to become one of the world’s leading manufacturers of transmission & distribution structures, including towers and poles.
The company also holds a strong position in the polymer sector and is a trusted partner for executing critical infrastructure EPC projects.
Skipper’s reach spans more than 40 countries across South America, Europe, Africa, the Middle East, South and Southeast Asia, and Australia.
One of its notable transmission projects is the Fatehgarh (II) to Bhadla (II) 765kV HEXA ZEBRA Conductor Transmission Line, which involved supplying, setting up, testing, and commissioning of equipment for Power Grid Corporation of India.
Coming to its financials, Skipper’s has posted significant growth over the past five years.
Between FY20 and FY24, revenue and net profit increased at a CAGR of 11.9% and 21.2%, respectively. The average RoE was 5.2% and RoCE was 15.1% over this period.
Skipper has set ambitious goals, targeting ₹10,000 crore of revenue by FY29. It aims to capitalise on the growing demand for transmission towers, especially high-voltage direct current (HVDC) systems that are critical for long-distance power transmission and the integration of renewable energy sources.
Conclusion
The government has unveiled an ambitious ₹9.15 trillion investment plan for central and state transmission systems by 2032. This is part of the revised National Electricity Plan (NEP), which aims to strengthen the country’s energy infrastructure.
Union minister for power Manohar Lal Khattar emphasised that the upcoming NEP is designed to meet a projected peak demand of 458 GW by 2032, a significant increase over current levels.
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The plan includes a substantial expansion of the transmission network to 6.48 lakh circuit kilometres (ckm) and an increase in transformation capacity to 2,342 GVA by 2032. It also aims to introduce new HVDC lines to enhance the existing infrastructure and boost inter-regional transfer capacity.
A notable development under this strategy is the approval of 50 GW inter-state transmission system (ISTS) capacity. The enhanced infrastructure is expected to accommodate 335 GW of capacity, facilitating the evacuation of 280 GW of variable renewable energy by 2030. This strategy presents a significant opportunity for India’s best power transmission stocks.
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
