India's decision to grant a two-year exemption to four Chinese transformer manufacturers for government contracts has drawn mixed views from global brokerages, with some seeing little impact on the sector's growth outlook while others warning of pressure on margins and valuations for domestic equipment makers.
The differing assessments come after the government allowed four Chinese electrical equipment manufacturers with manufacturing units in India to participate in government and central public sector enterprise tenders for two years. The move has put stocks such as BHEL, Siemens Energy India, Hitachi Energy India, GE Vernova T&D and CG Power in focus as investors assess its implications for the transmission and distribution equipment industry.
Jefferies Sees Demand Outweighing Supply
Jefferies said the exemption does not alter its constructive view on India's power transmission and distribution sector.
The brokerage said import restrictions remain in place and demand continues to exceed supply, despite the government's decision to permit the Chinese manufacturers to bid for certain projects.
It said the recent correction in power equipment stocks presents a buying opportunity and reiterated its positive stance on Hitachi Energy India and Siemens Energy India, which it continues to view as its preferred picks because of their earnings growth prospects.
CLSA Warns Of Pricing Pressure
CLSA took a more cautious view, saying the exemption could increase competition in conventional transmission equipment and weigh on pricing power and margins for domestic manufacturers.
The brokerage said the government's decision followed requests from the Ministry of Power as transmission utilities grappled with price inflation and constrained supply chains.
"The Indian government has granted a two-year exemption to four Chinese electrical equipment manufacturers with manufacturing units in India, allowing them to participate in government/CPSE tenders," CLSA said.
It added that the exemption is expected to have the greatest impact on conventional transmission equipment, particularly the 400 kV and 765 kV segments, while high-voltage direct current projects remain relatively insulated because of technology and qualification requirements.
CLSA also said exports and opportunities in HVDC projects should support the near-term execution of Indian transmission and distribution companies. However, it cautioned that if Chinese manufacturers expand production under the Make in India programme, increased competition could place long-term pressure on the valuation multiples of domestic companies including Hitachi Energy India, GE Vernova T&D, BHEL and CG Power.
Macquarie Flags Margin Risks
Macquarie said the exemption appears intended to ease shortages of critical grid equipment as domestic manufacturers expand capacity.
The brokerage said the move is unlikely to result in unrestricted Chinese imports into sensitive areas of India's grid infrastructure. However, it said pressure on margins for companies producing 765 kV gas-insulated switchgear cannot be ruled out as competition increases.
Macquarie added that the exemption is valid for two to three years and is designed to address shortages of certain extra-high-voltage grid equipment rather than signal a broader policy shift on Chinese participation in the sector.
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