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The general perception is that the Modi government has nothing to show.
Well, seems we have an exception in the transmission niche of the power sector.
Over the past decade, as most focused on the generation side of the business, a skew emerged. The transmission side was relatively neglected, creating a scenario where the incremental power generated didn't have anywhere to go. The gap was not only quantitative (resulting in low power evacuation); it was qualitative also (translating into transmission and distribution losses). The result is India's priority is not only to catch up with the requirements of the day; there is a need to invest more than the existing appetite with the objective to build systemic redundancy. The result is a growing consensus that as the power generation space was the star sectoral performer in the previous Five Year Plan, the transmission segment is expected to be the sectoral hero this Plan (and the next).
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Having heard this script before, it was routine to dismiss that anything significant would ever transpire that would get people like me to sit up and say 'Oh, what the hell!' But truth be told, there is a positive story building in the transmission space right here and now.
One, the political environment is a catalyst in the transformation. The Bharatiya Janata Party (BJP)'s clean sweep has prompted the non-BJP to recognise that a grassroots demonstration of positive change is the only thing that will work, and what better way to showcase this than getting bijli (electricity) down to the last village mile before the next elections.
Two, there is an urgency as well. The companies engaged in working within the country's transmission sector indicate that a number of hitherto slack state electricity boards are rolling out larger orders with stricter implementation deadlines (unprecedented) in a facilitating environment with the chairmen of state electricity boards (SEBs) saying: "We are truly empowered!".
Three, project sizes are on the rise. What used to be a usual order of Rs 50 crore for engineering, procurement and construction (EPC) contracts for substation assignments within the transmission space has trebled, as a result of which order books are trending higher, kick-starting an entire segment into the next gear.
Four, the quality of projects is evolving. The EPC entities in the transmission space are indicating an increase in the proportion of 400 kV-plus orders from around 30 per cent of all orders being given out a couple of years ago to 50 per cent today.
The two companies that I tracked as winners in this emerging environment (among many others) are the Kolkata-based Techno Electric and the Nagpur-based Sunil Hi-Tech (niche energy technology entity, providing solutions in power plant electrical balance of plant (BOP) and EPC spaces). Techno's order book was worth Rs 1,200 crore at this time last year; it is Rs 2,000 crore today (Rs 600 crore awarded in the previous quarter).
Sunil Hi-Tech had an order book of Rs 2,600 crore last year; this is now Rs 3,600 crore.
The traction in revenues and margins in the previous quarter on the one hand and enhanced revenue visibility on the other indicate that we are likely to see some interesting action in this space.
Finally.
The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed
