GE Vernova, CG Power shares a buy: 'Overreaction' as 4 Chinese firms enter power tenders, says Nomura

The 7-8 per cent selloff in shares of grid equipment makers GE Vernova T&D India Ltd, CG Power and Industrial Solutions Ltd, Hitachi Energy India Ltd and Siemens Energy India Ltd was an 'overreaction' to the Ministry of Finance's decision to allow four China-origin manufacturers to bid for power tenders in India, Nomura said on Monday. 

Noting that the order explicitly states it creates no precedent, Nomura said market players read it as a competitive threat and sold off listed power-equipment stocks such as GE Vernova T&D India, CG Power, Hitachi Energy India and Siemens Energy India. For now, Nomura has retained its 'Buy' rating on CG Power (target price: Rs 1,100) and GE Vernova T&D India (Rs 5,675). It does not cover Siemens Energy India and Hitachi Energy India.

Nomura said its analysis indicated that over FY09-20, only 9 per ecnt of PGCIL’s transmission-related tenders for HVDC, substations, transformers, reactors, insulators, SCADA, FACTS and circuit breakers were awarded to the four exempted Chinese manufacturers. They are TBEA, Northeast Electric, Nanjing and Taikai. This was despite an unrestricted bidding field and, in several categories, a headline cost advantage. 

The structural frictions beyond the security clearance meaningfully cap achievable share even when the regulatory door is open, Nomura said. They included such as technical qualification thresholds, prior-supply-experience (PQR) criteria, after-sales servicing expectations, testing and type-approval cycles, and buyer preference for vendors with an established execution track record on Indian grid specifications. 

"We believe re-opening the door for four specific Chinese entities is, therefore, not equivalent to re-opening the door to the 9 per cent share the exempted China-based vendors might theoretically command; it is a re-opening for four names that would still need to clear the same technical/qualification bar tender-by-tender," Nomura said.

The foreign brokerage said the order's own text states the exemption is valid for two years and explicitly may not be treated as a precedent - language the government does not attach lightly, and which signals this was negotiated as a targeted, time-boxed relief valve rather than a policy reversal, Nomura said.

Besides, it is noted that the exemption applies only to China-origin entities that already have India manufacturing units - not to Chinese imports broadly. 

Of the four, TBEA Energy (India) has the largest and most established 20,000MVA transformer/reactor manufacturing base in Karjan, Gujarat. It is only one of the four is likely operating at or near optimal utilisation. 

"Nanjing Electric India, New Northeast Electric India, and Taikai Electric India show balance-sheet and operating signals - thin paid-up capitalisation, small headcount, and revenue/profit decline - that are more consistent with sub-scale or underutilised operations than with plants ready to absorb meaningful incremental order volume without fresh capex," Nomura said. 
It concluded that the effective near-term competitive threat from this notification is concentrated in one name rather than spread evenly across four Chinese firms.