GE T&D India - Strong cashflow - ICICI Securities

GE T&D India witnessed a 10% YoY growth in revenues to Rs10.3bn during Q3FY21, majorly driven by exports, which contributed 25% of revenues in 9MFY21. Improvement in working capital supported net debt reduction, which reduced to Rs1.75bn from Rs4.43bn in Sep'20. Other income grew 85% YoY to Rs228mn supported by Rs120mn of warranty provision readjustment and Rs60-70mn of tax provision reversal. The focus on self-reliance is expected to support market share gains for localised players like GE T&D under automation, statcom, GIS and transformers. Factoring in better-than-expected execution/earnings and improvement in cashflow, we raise FY21E and FY22E earnings by 17.5% and 3%, respectively, and upgrade the stock to BUY from Add with a revised target price of Rs146 (earlier: Rs122).

- Better-than-expected execution and one-off gains uplift earnings: Despite lockdown-related demand slowdown, the execution was better than expectation. The management is focusing on cost control, which is evident with 38% YoY decline in other expense for Q3FY21. One-off gains of Rs259mn from the sale of a residential guesthouse property resulted in reported PAT of Rs559mn. Current orderbook of Rs47bn (1.5x TTM sales) provides growth visibility.

- Ordering expected to improve in FY22 given buoyant ordering pipeline: As per management commentary, total investment outlay in the Indian renewable sector is expected at US$500bn of which US$150bn is expected in T&D sector in next few years. Internationally, ordering pipeline from Nepal and Bangladesh of Rs5-7bn can be expected within next 12-15 months. Although green energy corridor-related ordering was slow in Q3FY21 as only five packages were finalised in the quarter, we believe, this will pick up going forward. On the state-ordering front, activity pickup is being seen in states like Odisha, Delhi, Gujarat, Karnataka and West Bengal, while, Uttar Pradesh, Himachal Pradesh and North East are expected to catch up soon.

- AtmaNirbhar push by government will support market share: Although near-term order intake outlook is challenging, government is currently incentivising domestic manufacturing. We believe this will lead to an improvement in market share under transformers, statcom, GIS and automation-related segment for the company.

- Healthy cashflow led to an improvement in balance sheet: Working capital improved significantly as receivables reduced by Rs1bn and inventories by Rs2.5bn. As of Dec'20, net working capital was Rs6.8bn (80days) and net debt reduced to Rs1.75bn from Rs4.43bn in Sep'20. Furthermore, Rs870mn from the sale of Global Engineering operations division (India for Global) to another GE entity is expected to reduce debt further.

- Upgrade to BUY: Net debt decreased sequentially by Rs2.68bn in Q3FY21 and working capital has improved to 80days. The ordering activity from state government has picked up and green energy corridor tenders are expected to gain traction. Due to the recent stance of the government to encourage localisation, we believe, domestic market share of the company is likely to improve. Given the improvement in growth outlook, reduction in working capital and debt, we upgrade the stock to BUY from Add. We increase our valuation multiple to 22x from 20x and roll forward the valuation to Sep'22E earnings resulting in a target price of Rs146 (previously: Rs122).

Shares of GE T&D India Ltd was last trading in BSE at Rs.131.65 as compared to the previous close of Rs. 122.8. The total number of shares traded during the day was 76624 in over 988 trades.

The stock hit an intraday high of Rs. 132.95 and intraday low of 123.35. The net turnover during the day was Rs. 9971861.

Source : Equity Bulls

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