Capital Goods have the power to rally further

Mumbai: Motilal Oswal Financial Services said that it continues to expect steady ordering activity in the power transmission and distribution (T&D) space. The capex-intensive nature of the value chain and high entry barriers for new players should restrict competition to a few players having control over the supply chain, it said. The scope for margin improvement in the near term is high for Siemens, Hitachi Energy, GE T&D, ABB, and transformer companies.

Based on meetings with six players focused on the T&D space and analysis of 12 players' commentaries, the brokerage said the pipeline of projects approved by the Central Electricity Authority of India (CEA) stands robust for next 2-3 years and is likely to be positive for most players in the value chain for the next 4-5 years. "Increase in market shares may result in 15-20% growth in T&D or energy segment inflows and revenues.

According to commentaries of capital goods companies, most industry players have indicated that demand for T&D products has increased sharply in the domestic and international markets, while the expected addition of generation capacity will boost transformer capacity as the current supply is constrained by already high capacity utilisation and limited capacity additions.