>Transmission & Distribution (JM FINANCIAL)

Competition growing
■ Chinese lead PGCIL’s transformer ordering with 91% mkt share…: Chinese steal the show by bagging 6 out of 9 projects ordered in the transformer space by PGCIL during the peak-ordering season of Jan-Feb’10. In value terms, Chinese viz. Baoding & TBEA Shenyang bagged orders worth Rs6.2bn out of the total Rs6.8bn, with a market share of ~91%. BHEL (BUY, Rs3,000)
and Crompton Greaves (BUY, Rs510) were the Indian players who bagged orders worth Rs233mn and Rs144mn respectively.

■ …aided by favorable currency movement: The Chinese currency depreciated 12.8% in last 1 year, inline with US$ decline of 13.1% (see Exhibit 2), leading to export competitiveness of the Chinese in India. Unfavorable currency movement can also loom a threat on BHEL and L&T, but with government machinery propagating domestic manufacturing, we will not be unduly concerned.

■ However, IEEMA is against unfair competition from China: The Indian Electrical and Electronics Manufacturers' Association (IEEMA) is already voicing against the 15-20% unfair advantage to Chinese firms and has been advising a safeguard duty to protect domestic manufacturers. We think a safeguard duty demand by Ministry of Heavy Industries (MHI) is likely.

■ 30% of transmission business trickled to sub-contractors: PGCIL ordered out tower packages worth Rs14.2bn in Jan-Feb’10 and a noteworthy point was the emergence of erstwhile sub-contractors competing against established companies. ~70% of business (see Exhibit 3) remained with Tata Projects, Jyoti Structures (BUY, Rs200), Kalpataru Power (BUY, Rs1,350) and L&T. We remain positive on the space on increasing orders from IPTCs and States too; competition remained one-off.

To read the full report: TRANSMISSION & DISTRIBUTION