Nomura bullish on India's T&D sector amid multi-decade growth prospects, surging electricity demand

Nomura said that India’s power transmission sector is ready for significant growth, driven by surging electricity
demand and ambitious renewable energy capacity addition targets.

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Japanese brokerage Nomura turned bullish on the electricity grids sector, the domestic power sector is poised for a multi-decade growth story, with strong earnings prospects.

India’s power transmission sector is ready for significant growth, driven by surging electricity
demand and ambitious renewable energy capacity addition targets. The Central Electricity Authority expects $110 billion in investments over FY22-32E. Globally, regions such as Europe, North America, and MENA are also investing heavily in transmission infra.

To capitalise on these manifold opportunities, Nomura said it favors product manufacturers with strong technological capabilities and a significant domestic manufacturing presence. Hence, it initiated coverage on CG Power and Industrial Solutions, GE Vernova T&D India, and Apar Industries.

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CG Power (Buy; TP: Rs 970; Upside: 34%)

Nomura is bullish on CG Power as it believes the firm is strategically positioned to leverage industry tailwinds in several of its business segments:

1) Industrial Systems — stands to benefit from a shift towards energy-efficient motors and increased adoption of advanced drives
2) Power Systems — potential beneficiary of heightened demand for power equipment driven by renewable energy integration and enhanced power evacuation from thermal plants
3) Railways — stands to gain from platform modernization, can address 25-30 percent of the order
4) Growth in Outsourced Semiconductor Assembly and Testing (OSAT) and motor sales to EV
manufacturers
5) Growth via inorganic acquisition mainly targeted towards increasing penetration in exports.

GE Vernova T&D India (Buy; TP: Rs 2,500; Upside: 43%)

The brokerage said that GE Vernova T&D India is favorably placed to capitalise on the structural tailwinds in the India T&D segment, led by:

1) A pick-up in Green Energy Corridor projects
2) Improving visibility on high-voltage direct current (5-6 projects worth $15 billion in the next 4-5 years)
3) Digitalization of grid infrastructure (opportunities of $4 billion in the next five years)
4) Grid integration for clear energy capacity addition (30 projects worth $1 billion in the next three years)
5) Uptick in orders from the metals, mining and cement industries. States are also making efforts in unmanned substations, with State Transmission Asset Management Centre projects in the pipeline.

Apar Industries (Buy; TP: Rs 11,700; Upside: 25%)

According to Nomura, Apar Industries is a proxy play on India’s T&D story and globally as well. It can deliver a revenue CAGR of 17 percent over FY24-27F, led by:

1) Its conductor business, which is enjoying robust domestic demand for premium HTLS conductors in the domestic market, and a growing export market for conventional conductors with better a premium (conductor segment revenue CAGR [FY24-27F]: 16%)
2) The Speciality Oils division, which is driven by its dominant transformer oil business and is a proxy for the transformer story in India; the division is currently facing severe capacity constraints (Speciality Oils segment’s revenue CAGR [FY24-27F]: 13%)
3) The company’s focus on high-performance elastomeric and specialized cables, and its recent foray into the B2C market with its E-beam — with a first-mover advantage (cable segment revenue CAGR [FY24-27F]: 23%).

Among the stocks, GE Vernova T&D India has skyrocketed a whopping 350 percent over the past year, more than quadrupling investors’ money, while Apar Industries and CG Power shares recorded a 12-month run of 95 percent and 88 percent each.

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