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Voltamp & CG Power: Riding the Power Demand Surge in India


A lot is happening in the Power Sector. Until a year ago, topics related to power, renewables, solar, and green energy seemed more like a fad than anything substantial to investors. It’s hard to blame them, given the scars left by companies like Suzlon, Inox Wind, REC, PFC, and others. However, things have shifted in the last one to two years. In this post, we will try to determine whether this is a fleeting trend or a truly fundamental shift in this emerging sunshine sector—once again.

For any trend to be sustained, we need three main elements: Growth drivers, supply side, and a government push. It looks like the Power Sector is currently in the sweet spot now. Let’s examine each of these factors.

The Opportunity

India needs a lot of power (hopefully this time it’s for real, unlike the 2008).

Looking ahead, India’s power demand is set to surge due to major infrastructural and industrial tailwinds:

  1. Renewable Energy: By 2030, plans include establishing 523 GW of renewable energy and developing a significant green hydrogen capacity with an investment of 19,744 Cr.
  2. Power Infrastructure: With Rs. 2 lakhs Cr earmarked for competitive bidding projects over five years.
  3. Distribution Sector Enhancement: The Revamped Distribution Sector Scheme has approved proposals worth Rs. 1.8 Lac Cr
  4. Data Centers: The market size is growing at 15% with an expected investment of ~$10 Billion.
  5. Railway Expansion: A 2.5 Lac Cr capital expenditure will introduce 400 Vande Bharat trains over three years, necessitating over 1200 locomotives annually.
  6. Oil & Gas Investments: Major investments amounting to Rs. 1.5 Lac Cr are projected in the next five years.

Voltamp & CG Power: Riding the Power Demand Surge in India

*Source: CG Power Presentation

These initiatives indicate a sharp increase in power demand to support these expansive projects.

The Supply side of things

To sustain any emerging trend, the supply side must keep up with the demand.

India’s total installed capacity is currently at 426 GW. By 2028, India is looking to bump that up to 618 GW. A big chunk of this increase – about 170 GW – will come from clean, renewable energy like solar and wind. This is on the back of government push in the form of reforms & additional investments flowing into this sector.

Voltamp & CG Power: Riding the Power Demand Surge in India

*Source: CRISIL report on Solar Power in India Dec 2023

The share of renewable energy in the total power generation increased from 17% in FY15 to 23% in FY23. The CAGR in thermal installed capacity for the last five years was 2.9% whereas for renewables it was 10%, indicating a shift in trend from thermal to renewables. This trend will continue for the foreseeable future.

The Government Push

So, demand is there and supply is also kind of sorted. All we need is a little bit push from the government side.

Re-align your portfolio with what the government is doing; it’s like cruising on a highway. You can expect a smooth ride with minimal obstacles. A couple of months ago, the Ministry of Power released a draft of the National Electricity Plan.

Here’s the gist of it:

  • From 2022 to 2027, approximately 4.75 lakh crore rupees will be needed to upgrade India’s transmission system, including new lines, substations, and other technologies.
  • By 2032, India is targeting at an installed capacity of around 900 GW, up from India’s current total capacity of 426 GW.

Few other government initiatives include:

  • India has launched a Production Linked Incentive Scheme to boost solar PV module manufacturing. The first tranche, approved in April 2021 with ₹4,500 Cr, led to 8,737 MW of solar capacity awards. The second tranche, approved in September 2022 with ₹19,500 Cr, aims to establish an additional 39,600 MW of solar manufacturing.
  • The Green Hydrogen Mission is kicking off with ₹ 19,744 Cr to create clean hydrogen energy and new tech.
  • The AatmaNirbhar Bharat initiative is boosting this with ₹ 24,000 Cr for solar manufacturing and new customs duties to support homemade solar products.
  • India is setting up a solar city in each state and building 57 solar parks with a total power of 39.28 GW. There is also a big push for floating solar projects.
  • India’s big goal is to cut its carbon emissions by 1 billion tonnes by 2030. We aim to make our economy 45% greener this decade and hit net-zero emissions by 2070

Voltamp & CG Power: Riding the Power Demand Surge in India

Source: CareEdge Research

On the back of this sectoral tailwind, we are looking to participate in the trend with two companies: Voltamp Transformers & CG Power.

Voltamp Transformers: Dull, boring & GARP stock

A perfect example of a company that is focused on one product and keeps getting better at it.

Headquartered in Vadodara and founded in 1967 by the late Mr. Lalit Kumar Patel, the company specializes in the manufacturing of Oil-filled Power and Distribution Transformers. They hold a domestic market share of 15% (as per the management). The company manufactures power and distribution transformers up to 160 MVA (80% of revenue) and dry-type transformers up to 12.50 MVA (13% of revenue). They currently have a capacity of 14,000 MVA and are operating at 84% utilization. They are looking to expand up to 16,500 MVA.

Voltamp caters to more than 1000 customers spread across industries like power, oil refinery, textile, chemical, and automobile, with the top 10 customers accounting for about 26% of the sales (FY23), and over 95% of the customers being private players.

The company has delivered decent growth in the last 3 years, with a sales CAGR of 17% and a PAT CAGR of 31%. EBITDA margins are strong at 25% (which may be on the higher side). During the same period, the realization was up by 70%, from 7 Lacs per MVA to 12 Lacs per MVA.

Voltamp has always maintained a debt-free and healthy balance sheet for many years (even during industry downturns). They currently have about 1100 Cr in cash and debt mutual funds as investments. The cash conversion cycle currently stands at 142 days.

The company currently has an order book of around 1400 Cr, giving us some growth visibility over the next 2-3 years.

Voltamp & CG Power: Riding the Power Demand Surge in India

Risk #1: Low promoter holding. Last year, in September 2023, the promoter sold a 12% stake for 562 Cr, bringing down their overall stake from 50% to 38%. This makes them vulnerable to any company looking to take over the company. The reasons for the stake sale are not mentioned, though.

Risk #2: At the end of the day, this is a cyclical sector. Currently, they are all going through a strong up phase. We have to understand that we must be agile and nimble to accept it once the tide turns.

Post Q4FY24 results, the stock had a knee-jerk reaction as its peers had given better results and expected the same from Voltamp as well. We expect this to be a short-term reaction, with the long-term growth visibility of the company remaining strong. The management is conservative and particular about maintaining a strong balance sheet. Being in a capital goods sector (which at the end of the day is a cyclical industry), this is indeed a good trait to have.

CG Power: High aspiration, Perfect execution

An ideal illustration of when financial strength meets operational efficiency.

Crompton Greaves, a 100-year-old company, underwent a significant transformation beginning in 2008 when it took on a 5000 Cr loan to bolster its power business. In hindsight, we know how things turned out.

This was followed by a demerger in 2014 that split the company into CG Consumer and CG Power. The challenges peaked in 2019 when board members of CG Power blew the whistle on fraudulent activities, revealing a substantial debt of around 2100 Cr. This crisis led the lenders to take the company to the NCLT, resulting in a 70% haircut as they only recovered about 650 Cr. One of the operational creditors was Shanthi Gears (subsidiary of Tube Investments)  In August 2020, Tube Investments bought a 57% stake in CG Power for 800 Cr, marking a turning point for the company.

Voltamp & CG Power: Riding the Power Demand Surge in India

CG Power today operates through two main divisions: Industrial Systems, which encompasses Motors & Railways and accounts for 68% of revenue, and Power Systems, which includes Transformers & Switchgears, contributing the remaining 32% of the revenue. The company is a top player in several of its product segments, holding significant market shares across various categories, such as 38% in Low Tension AC Motors and 36% in FHP Motors.

The Industrial Segment, though a relatively low growth area with expected sales CAGR of 10-12% and an EBITDA margin of 13-15%, is supported by a robust order book of 1982 Cr. Growth in this segment is likely to be driven by initiatives such as the complete electrification of Indian Railways and significant government investments through programs like PM GatiShakti and Kavach.

On the other hand, the Power Utilities Segment is experiencing higher growth, with a revenue projection of 2400 Cr, an expected sales CAGR of 25%, and an EBITDA margin of 15-16%, which is one of the highest in the industry. The order book for this segment stands impressively at 3574 Cr. This segment stands to benefit from the national push towards renewable energy with a target of 900GW by 2032, extensive metro projects planned in over 40 cities, and upgrades to freight corridors, among other initiatives.

Voltamp & CG Power: Riding the Power Demand Surge in India

OSAT: The next big trigger

CG Power is entering Semiconductor space. They are starting a JV (CG Semi Pvt Ltd) in collaboration with Renesas (6.8%), Stars Microelectronics (0.9%) and CG Power holding 92.3%. This venture plans a hefty capex of 7600 Cr over the next five years, aiming for operations to commence in 2.5 to 3 years.

Despite the high valuation risks at 75 times FY25E PE and potential execution risks, the semiconductor story, along with ongoing investments in railways and power utilities, continues to drive CG Power’s high market valuation, bolstered by the Murugappa Group premium.


To Summarize:

  • Big push from the Government in terms of Power infrastructure (2 Lac Cr over the next 5 years) and 2.5 Lakh Cr in Railways (including electrification).
  • 523 GW of installed renewable energy capacity by 2030, requiring an investment of ~20,000 Cr.
  • The data center market size is growing at 15% with an expected investment of around $10 Billion.
  • Voltamp has one of the strongest balance sheets in the Power utilities segment. The current order book is at 1859 Cr (1.2x of sales), giving us good growth visibility. The management is conservative and particular about maintaining a strong balance sheet. Being in a capital goods sector (which at the end of the day is a cyclical industry), this is indeed a good trait to have.  A decent GARP story.
  • CG Power has undergone a perfect turnaround and is now positioned to make the best of ongoing trends in Power Utilities & Railways. Foray into Semiconductors will be the next growth segment. Although currently expensive, premium valuations may continue to stay.

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Disclosure: Voltamp & CG Power are part of our Capitalmind Premium Portfolios. This article is for information only and should not be considered a buy or sell recommendation for any stocks.


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