Larsen & Toubro (L&T) has bagged a turnkey contract for building a power generation project worth over Rs 7,000 crore after a dry spell of three years.
The company will do engineering, procurement and construction (EPC) for the 1,320 mw ultrasupercritical power plant in Buxar district in Bihar, for SJVN Thermal Private. This order, among the biggest the company has received for a power generation project, would help its power equipment business which has been reeling under pressure due to the lack of orders in the sector.
This is one of the biggest orders we have received for power EPC, our first order in three years. We have been bagging jobs for flue-gas desulphurisation (FGD) units that has kept the order book going at a time when there are no orders for power generation projects in the sector.
This would aid L&T to achieve its guidance of around 10-12 per cent order inflow growth. In addition oil & gas capex in Middle East countries, and India should provide impetus to orderbook and earnings growth. With these, we initiate coverage on L&T with 'Buy' rating and target price of Rs 1,820.
Given the lack of activity in coalbased power generation sector due to poor financial health of companies and other challenges faced by the beleaguered sector, L&T has found new business opportunity in retrofitting of old plants with emission control equipment (FGD and SCR), but the average ticket size of orders is smaller at Rs 800 crore-Rs 1,000 crore.
In the past five years, we have hardly had manufacturing sector contributing to the GDP. If industrial growth has to happen, power capacity has to be increased to support it. According to the 19th Electric Power Survey Report, we will have a peak demand for reliable power of 299 gigawatts (GW) by 2026-27. This means India will have to add 37 GW by 2023, translating into 8-10 GW every year.
Before the SJVN order, the last order L&T bagged for a power generation project was in August 2016 from Neyveli Uttar Pradesh Power, worth Rs 3,860 crore. Lack of new projects and aggressive bids for the few that have come up have resulted in declining revenue and reduced order book for the company, much like its peers catering to the power sector. L&T has two joint ventures with Mitsubishi Hitachi Power Systems for core equipment for power plants, both running below capacity at Hazira. The turbine manufacturing unit is running at 30 per cent utilisation while the boiler unit is better off at 75 per cent utilisation owing to some export orders from the JV partner.
Referred From Economic Times