Schneider Electric Infrastructure

With India’s electrical equipment industry finding a new market in semi-urban and rural India as a result of the country’s improved electricity access, Schneider Electric Infrastructure is wellpositioned to cater to the huge increase in demand. 

I ncorporated in 2011, Schneider Electric Infrastructure is in the business of designing, developing, constructing and maintaining cutting-edge systems and products for the electricity network. The company manufactures a wide range of products, including transformers, power transformers, switchgears, medium-voltage switchgear, protection relays, differential relays, electricity distribution management systems and a software suite for self-healing smart grid, e-house and smart cities applications. 

A smart building is one that makes use of technology to enable the economical and efficient use of resources while fostering a comfortable and secure environment. It makes use of a wide range of equipment and technologies that have a number of advantages, including improved security, lowered energy consumption and increased productivity. One of the company’s best solutions, EcoStruxure Building, securely connects hardware, software and services over an Ethernet IP backbone to help buildings operate more efficiently, provide better comfort and productivity and increase in value. 

Power generation, transmission and distribution, oil and gas and other electro-intensive segments are some of the company’s key end markets. It operates four manufacturing plants in India, two of which are in Vadodara and one each in Kolkata and Chennai. The company’s vision is to lead the new digitised energy world by providing customers and partners with innovative connected products and solutions that are ready for the elevated expectations of power distribution.

Sector Overview

India ranks third in both the production and consumption of electricity globally. Any developing country must have enough power generation, transmission and distribution systems and given the size and population of India, this requires large infrastructure development. Although the country has enough capacity to generate electricity, a sizable section of the population still lacks access to suitable transmission and distribution systems. 

India’s need for electrical equipment is very high as the country tries to ensure that all of its citizens have access to electricity. From 2021 to 2025, the industry’s growth pace is anticipated to accelerate at a CAGR of 9 per cent, with the electrical equipment market share in India estimated to grow by USD 33.74 billion. The cables market will account for more than a third of this expansion, with the remaining market made up of switchgears, boilers, transformers and transmission lines.

The establishment of Heavy Electricals (India) Ltd. in 1956 marked the beginning of this industry. After a new business called Bharat Heavy Electricals was established, the two entities were eventually merged to create Bharat Heavy Electricals Ltd. (BHEL). BHEL is a significant turning point in the growth of the heavy electrical equipment industry. Some of the industry giants with huge market capitalisations and decades of experience are Siemens, Havells India, ABB India, CG Power and Industrial Solutions, Crompton Greaves Consumer Electricals and BHEL.

Financial Overview

The company’s financial performance showed a remarkable growth of 28.91 per cent from ₹288.18 crore recorded in Q1FY22, generating total sales of ₹371.48 crore in Q1FY23. When compared to the same quarter in FY22, the net profit for the first quarter of FY23 soared significantly from a net loss of ₹16.08 crore to a net profit of ₹26.53 crore. Considering the yearly performance, the net profit of the company surged by leaps and bounds to ₹27.62 crore as against ₹1.01 crore losses during last year. Also, net sales rose by 17.98 per cent to ₹1,530.34 crore as against ₹1,297.13 crore during the previous year ended on March 2021. 

The company is valued at ₹4,400 crore on the market. As of March 31, 2022, promoters owned a 75 per cent share in the company, of which Indian promoters controlled 70.57 per cent. Institutional investors own a total of 2.47 per cent while non-institutional investors own a sizeable 22.53 per cent. The company’s net sales and profit margins were gradually increasing. Different growth ratios such as EBIT growth, PAT growth and EPS growth have been unprecedented.

With a return on capital employed (ROCE) of 14-15 per cent, the company generated average profitability per unit of the total capital. When compared to the major players in the industry, the company’s price to earnings (PE) ratio is quite low, and the stock is also extremely affordable in comparison to its competitors. The stock’s 52-week high and low are, respectively, ₹189.60 and ₹92. The stock has soared more than 70 per cent over the last three months and has made the biggest comeback from its 52-week low. 

Outlook

The electrical equipment industry has found a new market in semi-urban and rural India as a result of the country’s improved electricity access. A favourable environment for the industry is being enabled by tailwinds like the government’s emphasis on infrastructure, the real estate sector’s revival and healthy demand visibility across numerous end-user industries. The power sector’s new domestic sourcing rules and the ‘Make in India’ initiative are giving the electric equipment market a boost. Additionally, the recent push to make India selfsufficient is encouraging for the industry.

The demand for electrical machinery will rise even more as power generation capacity expansion incentives are offered. Making India a preferred location for the production of electrical equipment is the goal of the Indian Electrical Equipment Industry Mission Plan (2012-2022). Indian manufacturers are stepping up their game in terms of facility capabilities for manufacturing, testing and product design. The Indian Energy Exchange Limited (IEX) is India’s first and largest power exchange. It controls over 98 per cent of the traded volume in electricity and has a diverse registered participant base.

The Central Electricity Regulatory Commission (CERC) has approved and regulated IEX, which has been in operation since June 2008. Initiating trade with Nepal allowed IEX to pioneer cross-border electricity trade (CBET). The grid initially linked countries in South Asia like Bangladesh, Nepal and Bhutan. The industry can be greatly aided in overcoming obstacles by expanding cross-border trade in electricity. Electricity trading can help reduce energy costs, safeguard against power surges, relieve shortages, speed up carbon reduction, and offer incentives for market expansion and integration. 

Coming back to Schneider Electric Infrastructure, it traces its roots back to Schneider Electric, a French business that was established in 1836 and is listed on the Fortune Global 500. In order to meet the new strategic requirements, it quickly expanded production capacity. It also enjoys a strong global position in terms of product manufacturing. The company recently broke ground on a ₹300 crore smart factory in Telangana. It will be the company’s second plant in Telangana and the 31st in the country, and will be built on more than 18 acres in GMR Industrial Park.

The new factory will be built in three stages with a total investment of ₹900 crore. When completed, it will be Schneider Electric Infrastructure’s largest and smartest factory. With higher productivity, the business successfully produces significant levels of revenue and net profit. As a result, the stock has attracted investors and surged more than 70 per cent over the previous three months. The stock has the potential to rise further given the optimistic long-term outlook for the electrical equipment industry and the excellent opportunities Schneider Electric Infrastructure has lined up. Therefore, this stock can be a fantastic investment for patient investors which is why we recommend HOLD.