Top 5 Stocks to Benefit from the Government's Rs 9.2 Trillion Power Transmission Plan

Power transmission companies have recently caught the spotlight due to the government's ambitious investment plan of Rs 9.15 trillion (tn) in central and state transmission systems by 2032.

This initiative is part of the revised National Electricity Plan (NEP), which aims to bolster the country's energy infrastructure. Union Minister for Power, Manohar Lal Khattar, highlighted that the upcoming NEP (2023-2032) is designed to meet a peak demand of 458 GW by 2032, a significant increase from the current levels.

The government plans to expand the transmission network to o 6.48 lakh ckm by 2032 substantially while also enhancing transformation capacity to 2,342 GVA during the same period.

This strategy will introduce new High Voltage Direct Current (HVDC) lines, complementing the existing infrastructure and increasing inter-regional transfer capacity.

This comprehensive strategy presents a significant opportunity for top power transmission stocks.

In this article, we will look at the top five companies from Equitymaster's stock screener that are set to benefit from this power transmission push.

#1 CG Power & Industrial Solutions

First on our list is CG Power & Industrials Solutions.

CG Power and Industrial Solutions Ltd. (formerly Crompton Greaves) operates in the power transmission and distribution sector.

The company is a key player in manufacturing and supplying products and solutions for electrical equipment, including transformers, switchgear, and circuit breakers, which are vital components in power transmission and distribution networks.

CG Power has a strong presence in power systems and contributes to the infrastructure that helps transmit electricity from power generation sources to end-users.

It operates in both domestic and international markets, serving various utilities, industries, and government sectors that rely on efficient power transmission systems.

The company is set to benefit significantly from the government's Rs 9.15 tn transmission investment plan.

With the expansion of transmission networks and increased demand for transformers, switchgear, and HVDC systems, CG Power's products will be in high demand.

CG Power reported its Q1 FY25 earnings with a growth in sales of 18.8% YoY to Rs 22.3 bn.

In terms of segment performance, the Industrial Systems division achieved aggregate sales of Rs 13.6 bn, up 8% YoY, with earnings before interest and tax (EBIT) at Rs 1.8 bn (13.4% of sales).

This is down from Rs 2 bn (15.7% of sales) YoY due to margin compression caused by a higher mix of railway division sales and competitive pricing pressures.

Its net profit stood at 2.4 bn, growing by a rate of 18.1% YoY. The net profit margin stood at 10.8% versus 10.9%, in Q1 FY24.

CG Power remains debt-free. Its order book reflects a strong future, with the unexecuted order book reaching Rs 70.5 billion (bn) as of June 2024, a 44% YoY growth. The Power Systems segment's order book alone surged by 60% YoY, with major contributions from ongoing expansion plans.

Additionally, CG Power recently approved the acquisition of a 55% stake in G.G. Tronics India Private Limited, a key supplier to the railway industry specialising in embedded systems.

The management expects 40% growth in its railway business, driven by newly awarded tenders and improving demand. The company's capacity utilisation stands at 85-90%, and expansion plans in the power and switchgear segments are set to be completed by Q3 FY25.

For more details, see the CG Power & Industrial company fact sheet and quarterly results.

#2 Hitachi Energy

Next on the list is Hitachi Energy.

Hitachi Energy is a major player in the power transmission space, specialising in advanced solutions for high-voltage direct current (HVDC) systems, transformers, and grid automation.

The company plays a critical role in helping countries and utilities enhance their transmission infrastructure, especially in integrating renewable energy sources.

As the Indian government rolls out its Rs 9.15 tn transmission investment plan, Hitachi Energy is poised to benefit from the increased demand for high-efficiency and sustainable transmission systems, particularly through HVDC technology and smart grid solutions.

For the full financial year 2024, Hitachi Energy India's net profit increased by 74.4% YoY to Rs 1.6 bn from Rs 0.9 bn in FY23. Revenue from operations for the year stood at Rs 51 bn, up 17.6% compared to the previous year.

Further, Hitachi Energy remains debt-free. It's order backlog reached Rs 85.4 bn as of the June 2024 quarter, a 21% growth compared to the previous year.

Moreover, it plans to improve its profits and productivity by focusing on operational excellence.

Going forward, its growth plans and strong order book will drive its revenue and profit growth.

For more details, see the Hitachi Energy company fact sheet and quarterly results.

#3 GE T&D

Next on the list is GE T&D.

The company offers products for the power industry, including power transformers, circuit breakers, switchgear, instrument transformers, substation automation equipment, digital software solutions, and more.

GE T&D has strategically focused on providing transformers specifically designed for these applications, recognising the growing importance of renewable energy sources like solar and wind.

This has positioned the company as a frontrunner in the Indian market, supplying transformers that play a crucial role in integrating renewable energy into the power grid.

With the government's Rs 9.2 tn power transmission investment plan, GE T&D stands to benefit significantly, especially as it plays a key role in expanding and modernising the transmission network to handle higher loads and renewable energy integration.

The company serves both domestic and international markets, with exports contributing 31% of its total sales in FY24.

In Q1 FY25, GE T&D India's net profit grew nearly six-fold from a year ago to Rs 1.3 bn; while its revenue expanded 34% year-on-year (YoY) to Rs 9.6 bn.

Its order backlog surged to a record-breaking Rs 62.8 bn as of June 2024, reflecting a massive 59% YoY increase compared to Rs 39.4 bn in June 2023. This robust backlog indicates a strong pipeline for future revenue.

The company in September bagged multiple orders worth 155 million (m) euros.

France-based Grid Solutions SAS and Grid Solutions Middle East FZE in Dubai have placed orders for the supply and supervision of high-voltage products.

Grid Solutions SAS's order value amounted to 55 m Euros and will be executed within the next 5 years. While Grid Solutions Middle East FZE's order value stood at 100 m Euro and will be executed by 2029.

Going forward, the company is investing heavily in digital technologies to enhance grid efficiency, reliability, and resilience.

For more details, see the GE T&D India company fact sheet and quarterly results.

#4 KEC International

Next on the list is KEC International.

KEC International is a major player in the power transmission space, specialising in engineering, procurement, and construction (EPC) services.

The company operates across multiple sectors, including power transmission, distribution, railways, and civil infrastructure. Its expertise in designing and executing large-scale transmission projects has made it one of the top contributors to India's power grid expansion.

With the government's Rs 9.15 tn investment plan for power transmission, KEC International is well-positioned to benefit. The expansion of transmission networks and the push for better infrastructure will drive demand for its EPC services, reinforcing its growth in both domestic and international markets.

The company in August 2024 secured two major orders. The company's revenue increased 6.3% to Rs 45.1 bn, while the net profit more than doubled to Rs 876 m.

On 28 August 2024, KEC International received a new order worth Rs 11.7 bn. Just a few days earlier, on 23 August 2024, the company secured another order valued at Rs 10.8 bn.

These orders have contributed to KEC International's year-to-date order intake reaching approximately Rs 100 bn, reflecting an impressive 80% growth compared to the previous year.

As of March 2024, the company has a debt to equity ratio of 0.1..Going forward, KEC is focusing on improving margins, which is expected to enhance profitability in the coming quarters.

With a diversified portfolio across civil, renewables, and cables, KEC is well-positioned to capitalise on growth opportunities in various sectors.

The company's growth strategy includes expanding its presence in international markets, particularly in regions like the Middle East, Africa, and South Asia.

Its continued investment in new technologies and infrastructure will further strengthen its competitive position.

For more details, see the KEC International company fact sheet and quarterly results.

#5 Kalpataru Projects International

Last on the list is Kalpataru Projects International.

Kalpataru Projects International Ltd. (KPIL), formerly known as Kalpataru Power Transmission Ltd., is a significant player in the global power transmission and infrastructure industry.

The company specializes in engineering, procurement, and construction (EPC) for power transmission and distribution networks, oil and gas pipelines, railways, and civil infrastructure projects.

KPIL is known for executing complex projects across domestic and international markets, helping to develop and maintain critical infrastructure systems.

In the transmission business, KPIL focuses on constructing high-voltage transmission lines, substations, and distribution networks, which are vital for connecting power generation sources to end-users.

The company has been involved in several high-profile projects across India, Africa, the Middle East, and Latin America, contributing to the development of global power grids.

In the financials of the company, for FY24, Kalpataru Projects International Ltd achieved its highest-ever consolidated revenue of Rs 196.3 bn and an operating profit of Rs 16.3 bn. The net income for the year grew by 18.6% YoY.

The company earns around 39.9% of its revenue from the transmission and distribution (T&D) sector.

The T&D segment's outlook has significantly improved over the last 12 to 15 months due to the increasing adoption of renewables and the rising power demand. This has driven the development and upgrading of grid infrastructure globally.

The visibility of tenders in the domestic T&D market is estimated to be around Rs 500 bn annually for the next 2 to 3 years.

The company's total order book as of May 2024 stands at approximately Rs 584.1 bn, with the T&D segment constituting around 35%. Further, the company in September 2024 secured new orders of Rs 27.7 bn.

These include new orders in the Transmission & Distribution (T&D) business in overseas markets and the EPC project for the Extension of the Airport from the Airports Authority of India (AAI).

Going forward, the company aims for revenue growth of more than 20%, with pre-tax profit (PBT) margins closer to 5%.

For more details, see the Kalpataru Projects International company fact sheet and quarterly results.

Conclusion

Apart from these five, other companies like ABB India, Siemens, Voltamp Transformers, and more are set to benefit from this push by the government.

Investing in power transmission companies presents a compelling opportunity, particularly given the government's significant investment initiatives.

Among the key developments, the approval of 50 GW Inter-State Transmission System (ISTS) capacity highlights a robust commitment to enhancing the transmission network.

The overall transmission infrastructure is set to accommodate 335 GW, aimed at evacuating 280 GW of Variable Renewable Energy (VRE) by 2030.

Currently, 42 GW of this capacity is complete, with 85 GW under construction and another 75 GW in the bidding phase.

The remaining 82 GW is anticipated to receive approval in due course. In just the first 100 days of implementation, the government has greenlit transmission schemes corresponding to 50.9 GW of capacity, with a total investment of Rs 606.8 bn.

These projects include the evacuation of renewable energy, notably offshore wind power in Gujarat and Tamil Nadu, which will also support upcoming green hydrogen and green ammonia initiatives in these regions, along with pumped storage potential near Maharashtra.

All these developments are poised to benefit India's power transmission stocks significantly.

However, prospective investors should undertake thorough research to evaluate market conditions, company fundamentals, and broader economic indicators.

While the outlook remains optimistic, careful assessment of the associated risks and opportunities in this evolving sector is essential for making well-informed investment decisions in power transmission.

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