China Power Sector Re-entry Sparks Fears; IIFL Flags Limited Impact
Overview
IIFL Institutional Equities notes concerns over Chinese firms re-entering India's power transmission and distribution (T&D) sector. While TBEA reportedly secured approvals for high-voltage reactors, analyst Renu Baid Pugalia believes high domestic capacity utilization and planned expansions will limit price and earnings impact, differing from past aggressive pricing.
Chinese Firms Re-enter Indian Power Sector
Reports of Chinese companies re-entering India's power sector have triggered a sell-off in capital goods stocks. Renu Baid Pugalia, Senior Vice President – Research at IIFL Institutional Equities, stated that while no official government notification has been issued lifting restrictions, specific approvals are being granted on a case-by-case basis.
Sentiment Overhang vs. Material Impact
"The announcement has created a sentiment overhang on the companies, but we do not foresee any material impact on earnings or a sudden crackdown on market pricing," Baid said. This suggests that despite the market reaction, the fundamental outlook may remain stable.
T&D Segment Focus
Industry interactions point to a significant development in the power transmission and distribution (T&D) space. Chinese manufacturer TBEA, which has had a manufacturing footprint in India since 2014, has reportedly received approval to supply high-voltage reactors to government entities for the upcoming financial year. These components are crucial for 400 kV and 765 kV high-voltage transmission lines, a segment dominated by domestic players like Hitachi Energy India Ltd., GE T&D India Ltd., and CG Power and Industrial Solutions Ltd.
Capacity and Pricing Dynamics
Baid clarified that restrictions are not fully lifted, but Chinese players, operating through their Indian factories, are now permitted to participate in future bids. She noted that the current environment is vastly different from previous cycles where Chinese firms aggressively undercut prices. Current capacity utilization across the transformer and transmission equipment industry is high, with factories largely operating at full capacity. This limits the expectation of a sharp fall in prices or earnings.
Domestic Expansion as Key Factor
Furthermore, Baid highlighted that substantial domestic capacity expansion is already underway. The manufacturing capacity for transformers is expected to nearly double within the next 12 to 15 months. "So whether TBEA was allowed or not, market prices were expected to correct," she concluded, indicating that upcoming domestic supply increases are a more significant driver for potential price corrections.
