We all know food, clothing, and shelter are basic human necessities. Now think of another basic need – something you simply can’t do without in today’s world. For us, it’s access to electricity.
This is among the topmost priorities of any economy, but especially India’s. The National Electricity Plan (NEP) 2023-2032 for central and state transmission systems has been finalised. It aims to expand transmission network from 485,000 circuit kilometres (ckm) in 2024 to 648,000 ckm in 2032, and transformation capacity from 1,251 gigavolt-amperes (GVA) to 2,342 GVA.
The goal is to integrate renewable and green hydrogen loads into the grid. It represents a huge opportunity, with investments of more than ₹9 trillion expected.
We had mentioned opportunities on the transformation capacity side here: Stocks to profit from India’s transformer gold rush. Let’s now turn our focus to transmission.
Companies that could benefit from the opportunity include Power Grid Corp, Apar Industries, Kalpataru Projects International, and KEC International. You can access a longer list of power transmission capex beneficiaries here.
But today there’s a specific small cap company we want to talk about in detail.
Global leader
Skipper Ltd is the biggest supplier to Power Grid Corporation of India, the domestic leader in power transmission, but there is a lot more to the company.
Backed by inhouse R&D, it is the world’s biggest transmission tower manufacturer, catering to more than 60 countries. It’s also the lowest-cost producer of transmission towers and poles in the world, thanks to backward integration. It has its own its own structure rolling, manufacturing, tower load testing station, and transmission line EPC. All this makes it a compelling proxy play for power transmission growth.
The company’s addressable market in transmission towers and EPC is ₹3-4 trillion, according to management. It can execute high-voltage power transmission and distribution projects where competition is less intense and margins are better.
The company also caters to the telecom sector and the water sector through its polymer pipe division.
Strong guidance
Management expects revenue, which came in at ₹320 crore in FY24, to clock at 25% CAGR over the next two to three years. The revenue target in five years is ₹1,000 crore.
The operating profit margin has been at 9.5%, which management expects to improve to 11% in two to three years.
This article does not imply any view on the company. Project execution will require capital expenditure. The strength of its balance sheet strength will also matter. Any slowdown in tenders or capex activity could weaken growth prospects.
Nonetheless, as the market leader in its niche and with diversified geographical exposure, this is a strong candidate for any watch list.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
