IGI Logo

Play on exciting industry transitions…

In this edition, we present our proprietary work on market sizing and TAM across key players and conventional-emerging segments. We also delve deeper into the electrification value chain, looking at: i) industrial capex, which is revving up led by PLI, while infra focus is giving a cyclical boost; ii) emerging trends led by sustainability, driving significant scale in the electric vehicles (EV) value chain; and iii) data centres, MRTS, etc adding huge potential for medium-LV products.

Coverage across value chain, scalable technology and robust business model/execution are some competitive moats that investors should judge while selecting leaders of tomorrow amid transition. We blend our benchmark-beating portfolio with select potential leaders.

USD16bn market opportunity; changing investment perspective

Doubling of electrification market to USD16bn (exhibit 38) with a quantum shift in complexity as well as scale of new infra, we argue, warrants a perspective for investors with a new lens. We see a host of factors spurring a herculean scale, thereby driving new set of demand over the course of the current decade. Notable ones being: i) cyclically-industrial capex spearheaded by PLI initiatives; ii) transmission capex front-ending led by RE integration plan by GoI to connect 450GW by FY30E with the grid; and iii) structurally, EVs and EV charging ecosystem, data centres and urban infrastructure/MRTS, among others.

Edge for capacity with capability; look for men among boys

It is important to choose the potential leaders of tomorrow carefully, as not everyone might survive or do well. In our view, players with a sustainable competitive edge that includes scalable technology and capacity, wider value chain coverage and robust execution/business model are the ones that could offer long-term compounding to stakeholders to ride the structural opportunity.

Some challenges: pace of transition, returns for technology, capex

While the domestic market offers a huge opportunity, it comes with its own set of challenges—pace of transition could be slow and back-ended, premium for technology might be tough given competitive dynamics, etc. Also, capital allocation and stakeholder expectation management amid industry transition matters.

Outlook: Cyclical-structural opportunities amid industry transitions

We expect the industry CAGR (equipment’s alone) of 7–8% over the decade (FY20– 30E), implying a market opportunity of INR1.2tn-plus with emerging segments clocking high double-digit CAGRs. Industry attractiveness – returns/cash flow – though might not be on a par with the best phase (FY03–12); even so, we see a material improvement versus the past five years given industry tailwinds (private capex, RE integration, emerging segments-EV, data centres, transportation. etc).

Our preference and picks: Siemens, Hitachi Energy and ABB Ltd are our top picks for electrification opportunities as they tick most boxes in our proprietary four-tier winner framework.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.edelweiss.in/disclaimer

SEBI Registration No. INH000000172

Above views are of the author and not of the website kindly read disclaimer