September 28, 2024
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Powergrid Stock Research Report by Motilal Oswal Financial Services
Analysis dated 27 September 2024
Sector: Power Transmission
Price on Analysis date: Rs. 365,
Target Rs. 425
(16% upside potential)
Target Period: 12 Months
Jul’24 India OHT exports, at USD 129mn, were down 6% YoY and lower than the trailing 12-month average monthly exports of USD 147mn, lowest in past 10 months. Higher despatches compared to retails in the past few months, we believe, are resulting in weakness in despatches currently, amidst adverse macro situation. Agri/OTR exports were down ~2%/11% YoY in Jul’24. In EU, the agri segment was up 9% YoY vs. a 7% deceleration in the OTR segment in Jul’24. US agri/OTR segments slowed 22%/32%. For RoW, exports decreased 7% YoY. Retain ADD and a DCF-based unchanged TP of INR 3,200, implying 26x FY26E EPS.
Exports up ~7% in Apr–Jul’24; destocking to impact near-term growth
OHT exports were lower by 6% YoY in Jul’24, at USD 129mn, vs. its trailing 12 month mean of USD 147mn. EU agri segment was up 9% YoY, whereas the overall agri segment was down 2% YoY. The OTR segment slipped 11% YoY led by 32%/7% slowing in US/EU. RoW decelerated 7% YoY given a high base; although MoM volumes were flat. We believe, agri segment-led recovery in exports to US/EU should lift the industry’s overall growth in FY25E on a favourable base of FY24, despite the current destocking exercise. Though near-term weakness in OTR retails and an inventory build-up would likely impact wholesale despatches in Q2, we expect overall growth for the industry in mid-single-digit-levels in FY25E.
Expecting weak Q2 for BIL; tough to expect flat volume YoY
With FY24’s favourable base, we expect mid to high single-digit volume growth in FY25E for BIL, assuming share of OHT exports from India staying largely consistent at ~50%. As against Q1’s volumes of 84k tonnes, our FY25E volumes, at ~320k tonnes, imply quarterly volumes at 79k tonnes in the next three quarters in FY25. Even at a ~75k tonne per quarter average between Q2E and Q4E, BIL should deliver ~6% YoY volume growth. Thus, we build in volume moderation in upcoming quarters of FY25E, considering inventory correction in the system and relatively weak retails.
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