A new rotation is now visible in India’s industrial capex cycle. Brokerage firm UBS believes that the power equipment value chain and defense sector may see huge growth in the coming years. Amit Mahawar, India Industrial Analyst at UBS, analyzed this trend in a conversation with our colleague CNBC-TV18.
Mahawar said that there has been some moderation in industrial capital expenditure during the last one and a half years, but the demand in the power equipment ecosystem remains very strong. He said segments like cables, transformers and switchgear continue to see healthy order inflows. Along with domestic demand, global demand is also playing a strong role in this.
“Ordering momentum is much stronger than other short-cycle industrial segments, and that points to the next growth cycle,” he said.
UBS estimates that power generation equipment could deliver the biggest positive surprise over the next 2–3 years. This includes all three categories, thermal, wind and solar.
Mahawar said that the order books are very strong, but the execution on the ground has not yet picked up pace. Power capacity planning is for the long term, so execution growth will accelerate gradually.
He emphasized on an important aspect that there has been almost no new thermal power capacity addition in India for the last 10–12 years. Now the demand for electricity is increasing rapidly and peak-load requirements are also increasing. UBS believes this segment will now enter a catch-up phase.
Additionally, policy-making in wind and solar and government initiatives for domestic manufacturing are further strengthening this growth.
defense sector
Regarding the defense sector, Mahavar said that the opportunities in this segment are still very strong. Especially for Tier-1 integrators and public sector enterprises. He said that the rapid decision making process by the government in strategic areas like electronic warfare, radar and increasing orders will boost growth in the next years.
In the defense sector, the government is emphasizing on reducing dependence on imports, the benefits of which are now reaching Tier-2 and Tier-3 companies as well. However, high working capital is still a challenge for smaller private players.
Consumer durables sector unstable
Mahawar said that demand in the Electrical Consumer Durables (ECD) sector is weak, profitability is under pressure. In comparison, B2B segments like Cables & Wires are performing well. Behind this he has cited reasons like strong export growth, globally competitive ability of Indian companies and huge advantage of power equipment growth cycle.
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