GE T&D India – Healthy cash flow compensates for margin issues – ICICI Securities


GE T&D India grew 36% year-on-year revenue to Rs9bn in Q4FY21, but was down 12% quarter-on-quarter. The improvement in working capital supported the reduction in net debt, which was reduced to 1.6 billion rupees from 4.3 billion rupees in March 20 and 1.8 billion rupees in December 20. The increase commodity prices impacted operating margins, reducing QoQ by 60 basis points. The current backlog is Rs45bn, implying an order intake of Rs7bn in Q4FY21, the localization boost should support long-term market share gains for the company. Given low order intake and margin pressures, we reduced FY21E earnings by 29.5% and improved cash flow to support a marginal 3.3% increase in FY23 earnings. . Given healthy cash flow, expected pickup in order intake and margins, we maintain our BUY rating with a revised target price of Rs166 (previously: Rs146).

– Exceptional impact of provisions on the published result: turnover increased by 36% year-on-year and the control of fixed overheads enabled margins to recover. However, the proportion of raw materials is high due to the increase in raw material prices limiting margin increases. A one-time provision of Rs225mn due to certain disputes resulted in a decrease in the declared PAT of Rs161mn. The current order book of Rs45bn (1.3x TTM sales) offers visibility on growth.

– Orders are expected to improve in FY22 given the dynamic order pipeline: total investment spending in India’s renewable energy sector is expected to reach $ 500 billion, of which $ 150 billion is expected in the T&D sector over the next few years. Internationally, a pipeline order from Nepal and Bangladesh worth Rs 5-7 billion can be expected within the next 12-15 months. Impacted by the foreclosure and delay in decision making, FY21 order intake fell 20% to Rs 23 billion; however, this is expected to recover given the good pipeline of orders from the center, state and private sector.

– The push of AtmaNirbhar by the government will support the market share: Although the outlook for short-term order intake is difficult, the government is currently encouraging domestic manufacturing. We believe this will lead to improved market share in the transformers, statistics, GIS and automation sectors for the enterprise.

– Healthy cash flow led to improved balance sheet: net working capital was reduced by 40 days year-on-year and net debt was reduced to 1.6 billion rupees from 4.3 billion rupees in March 2020. Given the Covid-19 pandemic scenario, management decided to conserve cash and therefore did not pay any dividends in fiscal year 21.

– Maintain BUY on valuation, cash flow and resumption of growth: net debt decreased to Rs1.6bn in Q3FY21 and working capital decreased by 40 days year-on-year. The activity of commissioning state government tenders and green energy corridors is expected to gain ground. Due to the government’s recent stance to encourage localization, we believe the company’s domestic market share is likely to improve. Given the improved growth outlook, reduced working capital and debt, in addition to a benign earnings assessment of 19xFY23E, we maintain BUY. We increase our valuation multiple to 23x by 22x and advance the valuation to earnings FY23E resulting in a target price of Rs166 (formerly: Rs146).

Shares of GE T&D India Ltd were last trading in BSE at Rs.138.2 from the previous close of Rs. 138.6. The total number of shares traded during the day was 93,040 in more than 2,400 trades.

The share hit an intraday high of Rs. 144.2 and an intraday low of 137.35. The net turnover during the day was Rs. 13,050,514.


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