20 May 2013

Capital Goods

PWGR order analysis: Key projects witness limited wins by

Chinese players; Competitive discipline bodes well

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Key projects like strengthening of Southern regional grid and Champa

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Kurukshetra HVDC transmission line connecting IPPs in Chhattisgarh have

contributed a large chunk of PWGR awards over last 5‐6 months. Interestingly,

also, a large part of the award wins in these projects have been by Indian

players with very limited participation from Chinese / Koreans.

Going forward we believe competition, particularly in PWGR tenders is likely to

be more disciplined. After significant erosion in the last few years, industry

profitability is stabilizing at lower levels. There are no signs of improvement, yet.

Green energy corridors / intra‐state transmission network / substation

automation projects are likely to contribute incrementally to order intake in

FY14/FY15. Several of these projects will necessitate technology upgradation by

Indian companies.

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PWGR order analysis: Key projects witness limited wins by Chinese players

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PWGR order awards during YTDFY14 (INR11b) largely constituted orders related

to strengthening of Southern regional grid (~INR4.6b) and conductor packages

related to Champa‐Kurukshetra HVDC transmission line connecting IPPs in

Chhattisgarh (INR3.7b). Both these projects have been the key drivers of PGCIL

awards over the last 5‐6 months, with Champa‐Kurukshetra line witnessing

project awards of INR29b (44% of total awards since Dec 12) and Southern

region witnessing awards of INR13b (~35% of total awards since Jan 2013). The

asynchronous grid connection for the Southern region is targeted for

completion by Jan 2014, and thus we expect project execution to accelerate.

Also, the High Capacity Transmission Corridor (HCTC) project for connecting IPPs

in Chhattisgarh is by far one of the largest transmission projects in India, with an

estimated cost of INR288b and is being executed in phases, with 3GW capacity

in Champa – Kurukshetra line targeted to be commissioned in Twelfth Plan (by

end FY17).

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Interestingly, also, a large part of the project wins in both these important

projects have been largely by Indian players with very limited participation from

Chinese / Koreans. We understand that of the total project awards (excluding

insulators) of INR41b till date (from Dec 2010 onwards) for the Champa‐

Kurukshetra line, just 5‐8% of the value has been bagged by Chinese players,

while the rest of the projects have been bagged by prominent Indian players.

This indicates a meaningful improvement in the competitive environment.

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Going forward we believe competition, particularly in PWGR tenders is likely to

be more disciplined given i) PGWR insistence on domestic manufacturing

capacity and forfeiture of 25% of the contract value for non‐compliance ii) two

stage bidding process whereby PWGR has put in a filtering process resulting into

reduction of number of final bidders (price bids get opened depending upon

past execution credibility).

PWGR orders during FY13 stood at INR161b, down 27% YoY, which includes

HVDC transmission package worth INR25b. While PWGR ordering is likely to

plateau as large part of the 12th Plan (FY12‐17) projects have already been

tendered out; we believe that there exist upside possibilities from i) Green

Energy Corridors (investment plan INR400b), ii) Intra‐state transmission projects

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Capital Goods

(as strengthening of the sub‐transmission network in the states is an important

part of the chain and several states are forming JVs / MOUs with PWGR) and iii)

substation automation (particularly post the blackouts in July 2012) including

concentrators, FACTS, etc for grid stability . We understand that few of these

project awards should possibly accelerate in FY14/FY15. Several of these

projects will necessitate the need for technology up gradation by Indian

companies while MNC players would benefit significantly on the back of

technological edge.

Category‐wise orders by PWGR

Monthly ordering trend by PWGR

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Capital Goods

Key orders during YTDFY14

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Capital Goods

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