GE Vernova, CG Power shares rebound from Friday's sell-off; Analysts advice whether you should buy

Shares of GE Vernova T&D Ltd., CG Power Ltd., Siemens Energy India Ltd., and Hitachi Energy India Ltd. are rebounding on Monday, July 6, after a sharp sell-off during Friday's trading session.

All the four companies highlighted above had declined between 7% to 9% after a memo from the Ministry of Finance, flagged by brokerages such as IIFL, had granted a two-year exemption to four Chinese companies to supply only from Indian manufacturing facilities, even as import restrictions still remain in place.

According to brokerage firm Jefferies, the demand-supply mismatch continues despite the local supply. It said that even as supply is growing between 80% to 90%, shortage and firm pricing is likely to continue going forward.

It highlighted Hitachi Energy & Siemens Energy as the top picks from this space and sees the recent correction as a buying opportunity.

Nomura has highlighted that Friday's move was an "overreaction" to what is a narrow exemption, and that the market participants read it as a competitive threat and sold these companies.

Over financial year 2009-2020, the exempted players won 9% of the transmission-linked tenders by Power Grid, Nomura highlighted, adding that there is uneven capacity readiness across the four exempted entities as only one appears to be running near-optimal utilization.

"Two-year window is too short to underwrite meaningful capacity expansion in India," Nomura said, adding that GE Vernova T&D and CG Power are its top picks within this space.

Macquarie said that most of the grid companies are in the midst of capacity expansion and are likely to add capacity over the next two to three years, which is the validity of this exemption as well.

"Should this exemption be extended in the future, long-term negative impact on margins of the incumbents, especially the 765 kV GIS players cannot be ruled out," the brokerage said.

It went on to add that the exemption is to address the current shortage of certain EHV grid equipment and is unlikely to allow large scale Chinese imports in sensitive areas of grid infrastructure.

CLSA does not see this move impacting near-term volume growth, but increased competition is likely to weigh on pricing power and margins of domestic T&D equipment companies such as Hitachi, GE Vernova T&D, BHEL and CG Power.

The brokerage goes on to warn that investors should be wary of lofty valuations on historic peak high margins led by the "Make In India" driven shield, but the government seems to take cognizance of the excessive margins made by this sector.

Shares of GE Vernova T&D are trading 4% higher at ₹4,567. The stock has snapped a nine-day losing streak in today's session.

Shares of CG Power are trading 3.6% higher at ₹924.1. The stock is still up 45% so far this year.

Shares of Hitachi Energy India are off the opening highs and are now trading 2.3% higher at ₹31,755, while those of Siemens Energy India are trading 4.2% higher at ₹3,418.