Dear Viewers
Energy space is witnessing an interesting development.
National Electricity Plan (NEP) 2023 - 2032 for Central and State transmission systems has been finalized.
It aims to expand transmission network from 4.85 lakh Circuit kilometers in 2024 to 6.48 lakh Circuit kilometers in 2032.
The opportunity is big with investments expected at over Rs 9 trillion by 2032, driven by an expected 30 % increase in Inter state transmission line additions.
The plan aims to integrate renewable and green hydrogen loads into the grid.
Watch the video to know more about the potential beneficiaries of this plan.
Energy space is witnessing an interesting development.
National Electricity Plan (NEP) 2023 - 2032 for Central and State transmission systems has been finalized.
It aims to expand transmission network from 4.85 lakh Circuit kilometers in 2024 to 6.48 lakh Circuit kilometers in 2032.
The opportunity is big with investments expected at over Rs 9 trillion by 2032, driven by an expected 30 % increase in Inter state transmission line additions.
The plan aims to integrate renewable and green hydrogen loads into the grid.
So let's now look at the players in the ecosystem that would be influenced by this plan.
The first few names that come to mind include PGCIL, Apar Industries, Kalpataru Projects International, KEC Internationaland so on. You can access the broader list of power transmission capex beneficiaries by clicking at the link below the video
But there is one specific smallcap opportunity - Skipper LtdI want to talk about in detail.
Skipper is the biggest supplier to PGCIL , the domestic leader in power transmission.
Backed by inhouse R&D, Skipper is also the biggest transmission tower manufacturer globally and caters to over 60 countries.
What's more, it is the lowest cost producer of transmission towers and poles in the world, on account of backward integration -having its own Structure rolling, manufacturing, Tower Load Testing Station & Transmission Line EPC
All this makes it a proxy play worthy to be on your watchlist for transmission capex and investments in the renewable energy.
The addressable market in transmission towers and EPC for the company is ~Rs 3 to Rs 4 trillion as per the management. Apart from the scale and backward integration benefits , what further differentiates the company is its ability to execute high voltage power transmission and distribution projects where the competitive intensity is less, and margins are better.
The company is also a prominent manufacturer of telecom and railway structures.
Besides, through its polymer pipe division, it caters to water sector .
All the segments it is present in are witnessing benefits of rise in capex and infra cycle .
No wonder than that it has closed the latest quarter with the highest ever order book of Rs 66 bn, with 15% share from export markets. The engineering and infra related orderbook is 2.3 times of FY24 revenue.
In the trailing 12 months, its revenue and profits have grown at over 71% and 60% respectively.
The management expects revenue at Rs 3.2 bn in FY24 to grow at 25% CAGR over next 2 to 3 years backed by a strong bid pipeline. In 5 years, the target for the topline is Rs 10 bn vs Rs 3.2 bn in FY24.
The operating profit margin has been at 9.5% to 10%, which the management expects to improve to 11% in 2 to 3 years.
Now do note that this discussion does not imply any view on the company. The execution will need capex, and balance sheet strength will matter. At present, the net debt to equity is at 0.6 times. Any slowdown in the tenders or capex activity could weaken the growth prospects.
Nonetheless, as the market leader in its niche and with diversified geographical exposure, this is a must have candidate on your watchlist for the transmission capex supercycle.
Hope you find this information useful. Let me know through views in the comments section.
Wish you all a very happy and Prosperous Diwali!
Richa Agarwal (Research Analyst), Managing Editor, Hidden Treasure has over 7 years of experience as an equity research analyst. She routinely scours the small cap universe for fundamentally strong companies trading at attractive prices. Having degrees in both finance as well as engineering has served her well in analysing business models across the small cap space.
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