Jul 6, 2000|
Engineering: Time for a relook
The engineering sector has been at the receiving end in the last year or so. Most companies across various segments are near their 52-week lows. Much of this could be attributed to the sluggish demand growth from user industries, but the hype around new economy stocks also contributed to their lackluster performance on the bourses.
But all this could be a thing of the past. With huge investments in user industries like power a necessity, engineering companies are in for good times.
Consider this: India’s present installed electric power generating capacity is around 96,682 MW against an estimated demand of over 120,000 MW. This is just the deficit in power generation. The deficit is mammoth in case of Transmission & Distribution (T&D) of electricity. In India, gross fixed asset ratio of T&D to that of generation is a miniscule 0.3:1 as against an international benchmark of 1:1.
This indicates a huge latent demand for companies producing T&D equipment. By T&D equipment we mean companies producing power transformers, switchgears and motors/alternators/generators. So in effect, this should mean good times ahead for companies like:
L&T: which commands almost 24% market for switchgears
ABB: 19% of switchgears and 5% of electric motors
Bhel: 9% of switchgears and 22% of transformers
Siemens: 10% of switchgears and 15% of electric motors
Crompton Greaves: 17% market in switchgears and 20% in transformers.
Of course the pros and cons of investing in each of these will depend on a lot of other factors. But what we are saying is that these companies have the chance to make it good on the impending power investment boom.
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