Smallcap Beneficiaries in the Transmission Capex Super Cycle

We all know that food, clothing, and shelter are the necessities for human life. Now think of the next basic need. One that you can't do without in today's world. For me, it's the access to power supply.

For any economy, especially the Indian economy, it's definitely among the topmost priorities.

An interesting development in energy space has happened recently. The National Electricity Plan (NEP) 2023-2032 for central and state transmission systems has been finalised.

It aims to expand transmission network from 4.85 lakh ckm in 2024 to 6.48 lakh ckm in 2032. The transformation capacity will increase from 1,251 GVA to 2,342 GVA.

The plan aims to integrate renewable and green hydrogen loads into the grid.

The opportunity is big with investments expected at over Rs 9 trillion (tn).

A few months ago, I had mentioned the opportunities in transformation capacity side here - Stocks to Profit from India's Transformer Gold Rush.

Let's now turn our focus to the transmission aspect.

The first few names that come to mind that could benefit from the opportunity include PGCIL, Apar Industries, Kalpataru Projects International, KEC International and so on. You can access the broader list of power transmission capex beneficiaries here.

But there is one specific smallcap opportunity - Skipper Ltd - I want to talk about in detail.

Skipper is the biggest supplier to PGCIL which is the domestic leader in power transmission.

But there is a lot more to it.

Backed by inhouse R&D, it is also the biggest transmission tower manufacturer globally and caters to over 60 countries.

Its also the lowest cost producer of transmission towers and poles in the world. That's because of backward integration. It has its own its own structure rolling, manufacturing, tower load testing station and transmission line EPC.

All this makes it a proxy play in your watchlist for power transmission growth.

The addressable market in transmission towers and EPC for the company is Rs 3-4 tn as per the management.

The company can execute high voltage power transmission and distribution projects where the competitive intensity is less and margins are better.

Apart from power transmission, the company also caters to telecom sector and to water sector through is polymer pipe division.

In the last 12 months, its revenue and profits have grown at over 80% year on year (YoY).

The management expects revenue at Rs 3.2 bn in FY24 to grow at 25% CAGR over next 2 to 3 years. In 5 years, the target for the topline is Rs 10 bn.

FY24 was the year of highest ever order inflow for the company.

The orderbook in the transmission and distribution stands at Rs 34 bn. The bid pipeline is Rs 65 bn domestically and Rs 115 bn on the international front.

The operating profit margin has been at 9.5%, which the management expects to improve to 11% in 2 to 3 years.

This article does not imply any view on the company.

The execution will need capital expenditure by the company. It's balance sheet strength will also matter. At present, the net debt to equity is at 0.5 times. Any slowdown in the tenders or capex activity could weaken the growth prospects.

Nonetheless, as the market leader in its niche and with a diversified geographical exposure, this is a must have candidate on your watchlist for the transmission capex supercycle.

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Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)