Partnerships With Reliance And Adani Will Drive Future Expansion In India's Power Sector

Key Takeaways

• Strong investment demand and record backlog indicate potential revenue growth, driven by grid modernization and decarbonization efforts in India.
  
• Expansion in export markets and strategic partnerships bolster revenue potential and position the company for sustained profitable growth.
  
• Reliance on government projects and supply chain challenges pose risks to revenue and profitability amid declining order bookings and rising competition.

Catalysts

Engages in building power transmission and distribution infrastructure in India and internationally.

• Strong investment demand in the power sector, driven by grid modernization and decarbonization, particularly in India, indicates potential revenue growth as these trends continue to accelerate.
  
• The company has achieved a record high order backlog, which provides strong visibility into future revenue streams for the next few years.
  
• Expansion in export markets, including significant orders from Portugal and Spain, enhances the potential for increased revenue and earnings.
  
• Focus on enhancing operational efficiency and lean principles aims to sustain and potentially improve net margins over time.
  
• Continued strategic partnerships and successful project completions, such as those with Reliance and Adani, position the company for ongoing profitable growth and increased earnings per share (EPS).

GE Vernova T&D India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GE Vernova T&D India's revenue will grow by 32.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.0% today to 13.2% in 3 years time.
• Analysts expect earnings to reach ₹12.4 billion (and earnings per share of ₹48.31) by about March 2028, up from ₹4.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 64.5x on those 2028 earnings, down from 79.1x today. This future PE is greater than the current PE for the IN Electrical industry at 33.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.89%, as per the Simply Wall St company report.

GE Vernova T&D India Future Earnings Per Share Growth

Risks

• GE Vernova T&D India experienced a 12% year-on-year decline in Q3 order bookings, which could impact future revenue if this trend continues.
  
• The company mentioned potential risks and uncertainties in forward-looking statements, which could affect future earnings if their forecasts do not materialize as expected.
  
• Significant reliance on government-driven projects and policies in India means any changes or delays in government spending on grid infrastructure could impact revenue.
  
• There are existing challenges and constraints in the global supply chain that, if not managed effectively, could affect project delivery timelines and increase costs, impacting net margins.
  
• The market is seeing increasing competition from other firms expanding their capacities, which could squeeze GE Vernova T&D India's future pricing power and affect profitability.

Valuation

• The analysts have a consensus price target of ₹2052.5 for GE Vernova T&D India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2600.0, and the most bearish reporting a price target of just ₹1480.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹93.6 billion, earnings will come to ₹12.4 billion, and it would be trading on a PE ratio of 64.5x, assuming you use a discount rate of 14.9%.
• Given the current share price of ₹1507.95, the analyst price target of ₹2052.5 is 26.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.