GE T&D close to a turnaround

Operating profit margin expansion, driven by better execution, a major positive

The stock of GE T&D (formerly Alstom T&D) was locked in the upper circuit since the start of Wednesday’s trade, reacting to good June quarter results. With a gain of about 20 per cent, this is easily the best day the stock has enjoyed in recent times. 

Revenue at Rs 1,306 crore grew 40 per cent year-on-year, while net profit was Rs 61.7 crore, as against a loss of Rs 197 crore a year before. While the company got back to a net profit zone two quarters earlier, this is the first one where earnings growth was led by strong execution. Therefore, the first quarter of strong profitability after a long hiatus, explaining the stock price exuberance.

Operating profit margin was 9.2 per cent, one of the best in recent times. A year before in the same period, there was an operating loss. For investors, it means GE T&D is keeping its promise on execution, as margins continue to be on the rise. In the March quarter, the operating profit margin was about eight per cent. The June quarter's execution was marked by some noteworthy projects, such as commissioning of substations for Power Grid Corporation, Tamil Nadu Transmission Company and Jindal Steel Works.

Also, the order book's composition is balanced -- substation projects, thermal and solar power works, reactor contracts for Power Grid and some private orders. This implies that the margins might not be squeezed as in the past due to short-cycle orders, which don’t add much to profitability, though they contribute significantly to revenue. 

The current order book of Rs 8,420 crore offers at least 18 months of revenue visibility. as it should help the operating profit margin regain the 10 per cent range, analysts feel GE T&D is at the cusp of a turnaround. More details should emerge from the investor call scheduled the coming Monday.