Power transmission is key to India's energy transition and global new energy cost leadership ambitions. India's large and highly integrated grid enables utilisation of least-cost renewable generation sites. By keeping the central grid access free, the government is assisting viability of renewable projects via indirect financial support worth $270 billion, according to Goldman Sachs.
The research firm has initiated coverage on Power Grid Corp. Of India, Hitachi Energy Ltd. and Schneider Electric Infrastructure Ltd.
Creating surplus transmission infrastructure and keeping it free for renewables makes economic sense, as the gains from transition should more than offset the incremental network cost, Goldman Sachs said in an April 18 note.
The research firm estimates India's power transmission capex requirement at more than $500 billion by FY50E, 30% of the overall energy transition capital outlay.
Power Grid Corp. of India
The research firm has initiated coverage on Power Grid with a 'buy' rating. The target price is Rs 355, implying an upside of 26% from Tuesday's close.
Goldman Sachs views Power Grid as the largest beneficiary of the transition-linked grid capex estimate, which the stock is not fully pricing in.
With Power Grid's large balance sheet, low cost of debt and strong annual free cash flow generation, it estimate it could fund 30% of India's grid capex by FY32E, without reducing dividend payouts.
"We also think a cost of equity reduction led by beta compression could be another catalyst for stock re-rating," it said.
Hitachi Energy India
Goldman Sachs has initiated coverage on the stock with a 'buy' rating. The target price is Rs 8,250, implying an upside of 6%.
The research firm likes company's positioning as a pure upstream manufacturing beneficiary of India's energy transition, with tech leadership in high voltage equipment and highly indigenised manufacturing capabilities.
It should also benefit from tailwinds of grid digitalisation, global transmission equipment shortage, global supply chain diversification theme.
Schneider Electric Infrastructure
Goldman Sachs initiated coverage on Schneider Electric Infra with 'sell' and set a target price of Rs 470, implying a downside of 38%.
While it sees Schneider as a potential beneficiary of the expected rise in distribution capex, increase in energy efficiency-linked spend and broader digitalisation and global supply chain diversification trends, risk-reward appears unfavorable post a 375% rally in the share price over the last 12 months.
Shares appear to be pricing in 8% terminal growth beyond the 18% core earnings CAGR it expects in FY23-40E.
Key Risks
Delayed/slower-than-expected pick-up in transmission project awards.
Shortage of transmission equipment hampering project execution.
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