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While many Green Energy Corridor (GEC) orders were tendered out during the quarter, some of them are under final negotiations and expected to be awarded in 4QFY20. The Bangladesh HVDC project has been put on hold in order to ascertain measures to further reduce the project cost. Management indicated that subdued 4QFY20 compared to 3QFY20 on account of ongoing liquidity crisis, pricing pressure and delay in execution. We have revised our estimates and expect company to report loss in FY20E due to weak performance in 9MFY20 and declining HVDC sales and sedative execution going ahead. Muted capex from PGCIL over the near-to-medium term also adds an element of uncertainty. We maintain Reduce rating with revised TP of Rs134. (earlier TP of Rs150).
GE T&D reported weak set of numbers for 2QFY19/1HFY20 on the back of lower opening order backlog (HVDC nearing completion), weak fresh order inflow, intense pricing pressure and delays by customers due to liquidity stress. Sales declined 17% YoY to Rs8.2bn, with EBITDA declining by 96% YoY to Rs39 mn. Company reported net adjusted loss of Rs205 mn during the quarter against PAT of Rs396 mn in 2QFY19. Order inflow during 2QFY20/1HFY20 was down 5%/17% YoY. While many Green Energy Corridor (GEC) orders were tendered out during the quarter, most of them are under final negotiations and expected to be awarded in 2HFY20. The Bangladesh HVDC project has been put on hold in order to ascertain measures to further reduce the project cost. With ongoing liquidity crisis, company raised debt during the quarter, indicating higher interest cost in the near to medium term. We have cut earnings estimates by 36%/45% for FY20/21E and introduce/rollover to FY22 estimates. We downgrade our rating to Reduce from Hold with revised TP of Rs150 (25x FY22E).
Strong order pipeline augers well. GE T&D India Ltd’s (GETD’s) 1QFY20 revenue growth performance was weakest in last seventeen quarters. Revenue was down 37% YoY (-34% ExHVDC order) at Rs7.3 bn lead by lower opening order backlog, weak order inflow due to elections and muted execution. The order inflow was down 32% YoY at Rs4.2 bn, which mainly came from private sectors. The lower order inflow has been due to delay in tendering activity in transmission sector and postponement of few orders to 2QFY20. The company is L1 in orders worth Rs4 bn which are expected to be received in 2QFY20. Management indicated FY20 to be a challenging year due to lower order backlog both on the HVDC (Unexecuted OB Rs1.3bn) and other business. It reiterated strong opportunity coming up through Green Energy Corridor for evacuation of 100GW renewable energy in the country over the next few years. The company is also focusing on HVDC and other power systems opportunities in neighboring countries like Bangladesh, Sri Lanka and Bhutan. We had Reduce rating on the stock and has already fallen by 35% in the last two months. With weak 1QFY20 revenue performance, we have reduced EPS by 36%/32% for FY20/FY21E. The stock is trading at of 36x/25x FY20/21E. While the performance is expected to be poor, we expect limited downside from the current level. Hence, upgrade the stock from Reduce to Hold with revised TP of Rs179.
On immediate basis, tendering for 29GW (~Rs60 bn) is expected to start in Q1FY20 and awarding to happen by end of year which augurs well for GETD. The company is also focusing on opportunities in Renewables and Exports of HVDC and other power systems to neighboring countries of Bangladesh, Sri Lanka and Bhutan. We have modelled Revenue/PAT CAGR of 9%/11% over the next two years (FY19-21E). The stock is trading at stretched valuations of 35x/26x FY20/21E. Hence, we maintain our Reduce rating on the stock with TP of Rs257.
SOURCE: Data from D'Market via Quandl. Intraday data delayed 15 minutes.
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