{"id":1042,"date":"2018-09-02T20:26:00","date_gmt":"2018-09-02T20:26:00","guid":{"rendered":"http:\/\/oscillationss.blogspot.com\/?p=1042"},"modified":"2018-09-02T20:26:00","modified_gmt":"2018-09-02T20:26:00","slug":"bharat-bijlee-ltd-electrifying-future","status":"publish","type":"post","link":"https:\/\/oscillations.in\/?p=1042","title":{"rendered":"Bharat Bijlee Ltd: Electrifying Future!!!"},"content":{"rendered":"
\n<\/p>\n

<\/p>\n

\nAs we see our world is witnessing
\nradical changes. We can easily feel that major shift is going to happen in our
\nworld. Development, innovation and improvement is a perpetual phenomenon and
\nmost of the times development follows compounding growth rate not linear
\nbecause knowledge base of 10 things\/aspects can\u2019t promote 20 stories out of
\nthem but a base of 100 can create the scope for 50 new stories because the
\nknowledge of many of these aspects will intertwine and offer more scope for
\nsomething new and vast. And we are literally at that phase of growth\u2026look at
\nenergy sector alone. Our knowledge base in last 10-20 years has expanded from
\noil\/gas\/coal to oil\/gas\/coal\/solar\/wind\/Hydrogen\/battery and so on. So now we
\ncan intertwine all these and offer new innovative solutions.<\/span><\/div>\n
\n<\/div>\n
\nFurther, radical breakthrough
\ninventions are always few and in most of the cases initial fundamental
\nbreakthrough never serve much to the mankind. The more beneficial innovations
\nare process improvements which provide much higher benefits to humanity as a
\nwhole. In economics term, Industrial innovations providing news ways of
\nmanufacturing like using new materials (Normal minerals in place of rare earth,
\n3D printing), process improvements (Like IOT) etc. are much more critical for
\nan economy than strong R&D culture in the country. This is the reason that
\nin spite of so much brain capital (India is the R&D center of global
\ngiants) India is still not being able to achieve the much deserved success in
\nmanufacturing especially in electronics goods. <\/span><\/div>\n
\n<\/div>\n
\nTill now, we have made breakthrough
\ninventions like power, Automotive but in our mad run of <\/span>nowhere-ness we have consumed
\nenormous resources foolishly and now the situation is getting worse day by day
\n(not year on year). So I feel, now will be the era of optimization and
\nconservation and we\u2019ll see emerging technologies like Artificial intelligence,
\nIOT, Drones, 3D printing etc. which will result in optimal use of natural
\nresources. This will also take care of another ongoing catastrophic epidemic-Pollution
\nof all kind. Sometimes, after seeing the gigantic scale of pollution, I feel
\nwhether this proves the existence of Satan? <\/span><\/div>\n
\n<\/div>\n
\nAnd this correction and
\nconservation process is a big business opportunity like power consumes (and
\nwastes) maximum of natural resources and our lust to use power is limitless so
\nno doubt power industry will witness big activity in all dimensions whether it
\nis generation, transmission, distribution, use, substitution (EV). And where
\nthere is business opportunity there is the hunt for next big in stock market.
\nThis revolution is in initial phase and at present we can\u2019t<\/b> guess but at
\nleast we can sniff. So today\u2019s stock we are going to analyze is more a sniffing
\nand those who get cold easily should not venture into this.<\/span><\/div>\n
\n<\/div>\n
\nBharat Bijlee:
\nPath is visible?<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nBharat Bijlee (BB) deals in power
\ntransformers, Electric motors, Variable speed drives, Permanent magnet Gearless
\nmachines for Elevators. Its earlier avatar was more of Transformer player but
\noff late it is getting more into electric Motors, drives and this is what I
\nfind exciting. Transformer industry as a whole has faced difficult time in last
\n4-5 years due to low investments in power transmission and distribution segment
\nas State Electricity boards(SEB) had\/still has poor financial health and this
\nimperfectly aligned with the huge investments made for capacity expansions by
\nTransformer players after seeing the huge growth in power generation capacity
\nin India but the dream came crashing into ground hard and all the transformer
\nplayers were fighting for lower business at even lower margins. <\/span><\/div>\n
\n<\/div>\n
\nIt means that BB should have
\nmost of the financial indicators pointed towards wrong directions so it is best
\nthat we should ignore them as this will also lead us into wrong direction. But
\nthe road is not muddy and full of pitfalls as BB garnered NP of 26 cr on a
\nturnover of 800 cr in 2017-18 which is good and this will appear much better
\nconsidering the difficult recent times. This is partly due to the fact that BB
\nhas good clean balance sheet and net debt is almost nil (Interest cost is
\nevened out by Interest income), conservative management has enabled BB to
\nweather out the tough phase calmly.<\/span><\/div>\n
\n<\/div>\n
\nLet\u2019s check its various businesses
\nto see if it makes long term business sense and scope of scale:<\/span><\/div>\n
\n<\/div>\n
\nA)Electric
\nMotors:<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nElectric motors convert the
\nelectrical energy into usable mechanical force and carry out diverse tasks.
\nIndustries basically run on electric motors day and night and that\u2019s why
\nelectric motors are regarded as workhorses of the industry. Industry consumes
\n40 percent of all the energy that is produced, with motors consuming roughly
\n65-70 percent of this share. So we can see manufacturing is all about electric
\nmotors\u2026.or better to say \u201cEfficient\u201d electric motors. The efficiency of an
\nelectric motor is the ratio of mechanical output power to electrical input
\npower.<\/span><\/div>\n
\n<\/div>\n
\nThe more efficient an
\nelectric motor is lesser is the wastage\/consumption of power and we can
\nimmediately visualize why the cost of production is higher in India. Indian
\nindustries on average consumes around 30% more power as compared to advanced
\nmanufacturing nations like China<\/span>, USA and this is the most
\ndetrimental aspect which Make in India initiative needs to correct first of
\nall.<\/span><\/div>\n
\n<\/div>\n
\nThe more efficient electric motors
\nare graded as IE1, IE2, IE3 and IE4 with IE4 being categorized as super
\npremium. Motors below IE1 levels are called sub-standard motors. <\/span>At present most of the electric motors used
\nin Indian industries are either IE1 or lower grades which consume more power so
\nno surprise that our manufacturing is sub-standard as manufacturers try to
\nmatch the high power costs by savings in other much essential parts of a
\nproduct which lowers the quality of the product. Around
\n90% (20 GW) of industrial electric motors in India are not energy efficient. <\/span>So
\nthis inefficiency is cutting badly but bleeding is from two sides-first from
\nhigher costs and second from higher pollution as more power usage means more
\npower production which itself is a pollutive affair.<\/span><\/div>\n
\nIE2 and IE3 motors involves higher
\ncosts upfront but energy savings and lower repair and maintenance costs over
\nthe life time of the motor are much higher than the initial higher cost. These
\nhigh efficiency motors save energy during their life time which is valued
\naround 10-20 times of the initial higher cost. Indian Industries are now
\ngearing for changing its old low efficient electric motors as they usually have
\na life of 10-15 years and most of the Indian industries with continuous running
\nplants have electric motors older than 10 years. Repair and maintenance of
\nthese low efficient motors during their life time further reduce their
\nefficiency by 10%-15%.<\/span><\/div>\n
\n<\/div>\n
\nSo as we can see that there is
\nclear cut case for Indian Industries to shift to higher rating electric motors.
\nAnd after the success of Led Bulbs in India, Indian Government has set out the
\ntask for creating the right environment for the shift towards higher rating
\nmotors in India. First, Indian Government has banned any motors below IE2
\nrating from Oct-2017. But most importantly it has
\ngiven the responsibility to implement the shift to Energy Efficiency Services
\nLtd (EESL). EESL is a joint venture between NTPC Ltd, Power Finance Corp. Ltd,
\nRural Electrification Corp. Ltd and Power Grid Corp. of India Ltd.<\/span><\/span><\/div>\n
\n<\/div>\n
\nTask of energy
\nefficient Motors cut out for EESL<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nIt was EESL who has successfully
\nventured the installation of LED bulbs across the nation. As per studies, the
\nusage of LED bulbs has resulted in lesser load of around 10 GW (10000 MW) on
\nthe power grid which indirectly means the saving in generation capacity of
\n10000 MW which costs anywhere around 70000 cr!! The cost of LED bulbs during
\nthis time (from 2014 to 2016) came down to 40 from 310!!<\/span><\/div>\n
\n<\/div>\n
\nThe success of LED bulbs initiative
\nhas proved the capability of India to successfully carry out the world\u2019s
\nlargest energy efficiency programmes. The story of EESL is very encouraging and
\na case study for International Energy Agency. EESL is growing very fast in last
\nfew (100% growth rate) years. Its turnover in 2017-18 was 1400 cr with net
\nprofit of <\/span>39 cr. It is targeting
\nturnover of 3000-4000 cr this year and an IPO is planned in nest 2 years. It is
\nissuing bonds for funds and already ventured out to UK and Malaysia and is
\nplanning an acquisition in UK which will take its topline to 4000 cr!!
\nElectrified performance indeed. <\/span>Amid
\ndoubts and criticism of the much debated rural electrification programme, the
\nsuccess of EESL is a relief for Modi Gvernment.<\/span><\/div>\n
\n<\/div>\n
\nThe secret of EESL is creation of
\ndemand by providing low cost product (Most of the times free of cost and
\nearning money from the associated savings) and it procures product at low costs
\nbecause of very large orders which ensures the economy of scale for the
\nproducers.(I remember our wagon manufacturers
\nTexmaco\/Titagarh who are requesting such bulk orders from Indian Railways and
\nthis year finally IR has woken up and is giving large orders as IR has also its
\ntask cut out to be ready to serve the coming huge business after Dedicated
\nfreight corridor\u2026don\u2019t forget to pick Texmaco, Gateway distriparks, Concor and Hind rectifiers).<\/span><\/span><\/div>\n
\n<\/div>\n
\nEESL is implementing the same policy
\nhere. EESL is implementing the National Motor Replacement Programme (NMRP) under
\nwhich the EESL would work with industries to replace all inefficient motors
\nwith energy efficient IE3 motors with innovative financing models resulting in
\nsubstantial benefits to the industry and to the nation. While India have
\nprescribed IE2 as the minimum standard but developed nations across the globe
\nlike China, USA, European union are already having IE3 minimum standard.<\/span><\/div>\n
\n<\/div>\n
\nEnergy efficiency market
\nacross the globe is a big market valued around USD 20 Billion while USA, UK and
\nchina garnering 90% share of it and 80% of this market is supported by Govt
\nsubsidies. But EESL is implementing something very unique without any subsidy
\nand that\u2019s why I feel that the scale envisioned in the electric motor programme
\nis achievable. <\/span>When implementing these programmes, EESL works like an
\naggregator and improves the system and generate the return by eliminating the
\ninefficiencies and ensuring the scale of operations.<\/span><\/div>\n
\n<\/div>\n
\nCan you guess the scale
\nfor motor replacement? It is gigantic 1.5 crore inefficient electric motors!! By
\nreplacing all these motors with IE3 it is estimated that India will save around
\n6500 Billion electricity units per year reducing 57 million tonnes of CO2
\nemission per year. <\/span>These are Indeed Big numbers. IE3 motors use 7%-23%
\nlesser energy apart from other associated benefits of low cost maintenance. At
\npresent the target is of replacement of 120,000 electrical motors in the range
\nof 1.1 kW to 22 kW by September 2018. The focus is on pumps, fans, blowers, and
\ncompressors using motors which are more than 10 year old, low efficiency. After
\nthis, next target is of replacing 500,000 motors in 1.1 kW to 75 kW range by
\n2020. EESL will provide the motors free of charge to
\nindustries and will recover the costs plus margins through the financial
\nbenefits generated from energy savings or there will be upfront payment model
\nalso. <\/span>It is estimated that IE3 motor will pay back the extra costs in
\n12-18 months through energy savings.<\/span><\/div>\n
\n<\/div>\n
\nFor first phase of
\n120000 motors, EESL has set aside 220 cr for this and they have finalized
\nSiemens, CG and Bharat Bijlee as suppliers for the first phase and this to me
\nis a great news for Bharat Bijlee. <\/span>BB
\nsecured the order for Rs. 39 cr in the first phase and this will pave the way
\nfor the grand success in the future stages of the programme. <\/span>In the
\nfirst phase, EESL has been able to bring down the costs of motors by 30% and
\nresulted in an average of 15% lower electricity usage. Actually the status of
\nusage of electric motors in Indian Industry is so poor that there is vast scope
\nfor the elimination of inefficiencies and this will reflect in marked
\nimprovements in financial metrics and so there is a role for institutions and
\ninnovations like EESL\u2026just like a Doctor treating a patient.<\/span><\/div>\n
\n<\/div>\n
\nBharat Bijlee has great reputation
\nin Indian electric motor segment and has one of the high tech facilities in
\nIndia. In fact, when India is yet to incorporate IE3 motors in its schema, BB
\nhas introduced IE4 motors (under SynchroVERT brand) in India. IE4 range motors
\nhave a payback period of less than a year, and the life time saving for a
\ntypical 15 kW motor is Rs. 11.7 lakh for an incremental investment of Rs.
\n50000. <\/span>IE4 is the next frontier for the
\nIndian Industry and most of the high tech players competing in global markets
\nare already replacing their existing electric motor systems with IE4. These
\nmotors also do not need a Variable Frequency Drive for operation. Bharat Bijlee
\nhas also filed for a patent for the Line Start Permanent Magnet Synchronous
\nMotor (LSPMSM) technology used in the design of SynchroVERT.<\/span><\/div>\n
\n<\/div>\n
\nElectric motors have been one
\nsegment which has not yet garnered the attention which it deserves because if
\nwe can see they are everywhere. Some 20% of total energy consumed by
\nAgriculture sector in India is consumed by electric motors, 10% of commercial
\nsector. As India now is aiming high for \u201cMake in India\u201d the scope of scale of
\nelectric motors has become even bigger. Rural electrification, rise in the
\nincome levels of farmers means more demand for electric motors. Your fridge has
\nthis, your AC has this. Energy efficient AC\u2019s are fast becoming the norms now
\nin India as upfront cost of AC is not a factor anymore\u2026India is getting
\nrich\u2026the factor is the running costs so energy efficient systems plays big role.<\/span><\/div>\n
\n<\/div>\n
\nAgriculture Pump
\nReplacement programme:<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nAlong with NMRP, EESL is also
\nworking on agricultural pump replacement programme under AgDSM. The pilot phase
\nof the AgDSM programme has been rolled out in Andhra Pradesh, involving
\nreplacement of one lakh old pumpsets with BEE five-star rated energy efficient
\npumpsets along with smart control panels. India has around 2 cr such
\ninefficient agriculture pumps which will be replaced in stages and will be
\nprovided free of cost to farmers with five years warranty. No doubt the savings
\nwill offset the initial costs big time. These sub-standard pumps are a big drag
\non electricity which is born by government in the form of subsidy.<\/span><\/div>\n
\n<\/div>\n
\nActually anybody, who knows the
\nnonsense nature of free electricity subsidy, can understand the big business
\nsense in agriculture pump replacement programme. Farmers know that electricity
\nis free so he opts for cheap pump (which is of low quality) and even when it is
\ndue for replacement farmers are happy to spend some money to make it workable
\nbecause they know that at the most it\u2019ll waste electricity which is free\/heavily
\nsubsidized (some states charge fixed charges on the basis of motor\/pump
\ncapacity but low quality pumps waste much more energy) to them but it is not to
\nthe nation. So there is a big opportunity for savings for India.<\/span><\/div>\n
\n<\/div>\n
\nSo quality Pump players
\nwill benefit from it (Also every pump has an electric motor in it) but state Discom will be the major
\nbeneficiary of this initiative as they loose big time in power supply to
\nfarmers and as per estimates high rating pumps will save 25% of the current
\npower supply to farmers which they can supply to other paying users. Taking the
\ncase of a 5 HP pump which at present consumes electricity worth Rs. 45000\/- per
\nyear but this will come down to 34000\/- with new pumps and this will greatly
\nimproves the financials of DISCOM and this is the reason they are also funding
\nthe pump replacement programme.<\/span><\/div>\n
\n<\/div>\n
\nFinancially sound Discom
\nwill be able to support another business of Bharat Bijlee which is transformers
\nwhich in the recent past fell into trouble due to sorry state of finances of
\nState Discoms.<\/span><\/div>\n
\nFurther, even if we leave
\nNMRP of EESL still the direct demand from industry for IE2 electric motors will also be huge due to
\nban on lower rating motors by the Indian government and BB is going to garner
\ngood share of it.<\/span><\/div>\n
\n<\/div>\n
\nElectric Motors
\nand Electric Vehicles:<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nThis is one of the most important
\nthing which has been completely ignored by the market in the heat of looking for
\nbattery playout candidates. Most of the people think that the range of an
\nElectric vehicle will be decided by the capacity of the battery alone but this
\nis not the reality as the stored power in the batteries will be used by none
\nother the humble ELECTRIC MOTOR. So if we\u2019ll see much advanced version of
\nelectric motor in the EV then there will marked improvement in the range capacity.<\/span><\/div>\n
\n<\/div>\n
\nApart from Electric motors, there
\nare other parts of an EV where India has a local manufacturing prowess. The
\ncharging system of the battery is another major component because the fast
\ncharging will be the key to successful penetration of EV\u2019s and this fast
\ncharging involves rectifiers ( For converting AC power into DC as batteries
\nstore DC power) and we have Indian players in this segment which can step up
\nthe game\u2026same is for capacitors, electrical contacts. But India has fairly
\nadvanced capacity in electric motor manufacturing which India can use for its
\nEV targets. <\/span><\/div>\n
\n<\/div>\n
\nIndia tried to set targets for 100%
\nEV penetration by 2030 which is beyond reach even in dreams. I got very
\nskeptical as I took it as a \u201cShout good\u201d political gimmick but now sanity has prevailed
\nand India is focusing much real target of 20-30% and it is none other than EESL
\nwho has been assigned the task for making it a success and it is already on the
\njob after procuring 10000 EV\u2019s from Tata motors and Mahindra for Government
\nuse. These steps will lay the foundations for the future EV programmes for
\ngeneral public as well and will create and upgrade the existing capacities.<\/span><\/div>\n
\n<\/div>\n
\nEV\u2019s are still beyond the
\nunderstanding of most as it is a Muscle which is more like a computer on wheels
\nand its cost structure are still a mystery but most analysts are of the view
\nthat costs are falling even faster than their imagination and very soon they
\nwill disrupt the scene. The main reason for falling
\ncost is that an EV has just 24 moving parts while our conventional cars have
\nsome 150 moving parts. This efficiency is due to humble and very simple electric
\nmotors.<\/span><\/span><\/div>\n
\n<\/div>\n
\nThese 24 moving parts
\nensure the low maintenance costs over the life of the vehicle wherein our
\nconventional vehicles\u2019 gearbox and clutch have high maintenance requirements
\nonce the vehicle run for 150000 KM. <\/span><\/div>\n
\n<\/div>\n
\nEVs convert about 59%\u201362% of the
\nelectrical energy from the grid to power at the wheels. Conventional gasoline
\nvehicles only convert about 17%\u201321% of the energy stored in gasoline to power
\nat the wheels. An electric motor typically is between 85% and 90% efficient. Some
\nbig electric motors can now turn 97-98% of the electricity put into them into
\nmechanical energy. Even the best internal-combustion engines can manage only
\nabout 45%.<\/span><\/div>\n
\n<\/div>\n
\nInternal combustion engines (ICE) have
\nbeen around for about 140 years but electric Motors have been around for almost
\n250 years. It was only the cheap oil discoveries in the 19th<\/sup> century
\nthat paved the way for ICE but now with the costly damage in the form of
\npollution is posing existential dangers to the humanity it is expected that
\nelectric motors will get their dues now.<\/span><\/div>\n
\n<\/div>\n
\nNow along with batteries the focus
\nis also on advanced electric motors for increasing the range of EV\u2019s and
\nPermanent magnet motors are being touted as a viable alternative for the
\nconventional AC Induction motors. The key difference is that AC induction
\nmotors have to use electricity to generate the magnetic currents inside the
\nmotor, which cause the rotor to spin, whereas a permanent magnet motor doesn\u2019t
\nrequire that additional current since its magnets are always powered. (PMM are created
\nfrom rare-earth materials which may be another high growth space for India since
\nChina is trying to manipulate this industry and India has huge scope for rare
\nearth minerals).<\/span><\/div>\n
\n<\/div>\n
\nPMM are more efficient because they
\ndon\u2019t need to expend any energy to generate the field magnetic poles, as they
\nare permanently magnetic. So this always powered PMM lowers the discharge from
\nbatteries and thus improves the range. Even Tesla has used PMM for its model 3.
\nPMM are more relevant for lighter EV\u2019s since high performance cars will need AC
\nInduction motors for generating high power which is the limiting factor of PMM.<\/span><\/div>\n
\n<\/div>\n
\nThe permanent magnet motors are
\nmore expensive (due to using rare-earth elements in their magnets), but they are
\nmore efficient, weigh less which is very crucial for smaller vehicles like
\nsmall cars and electric bikes. But this weight penalty of AC Induction motor
\nbecomes insignificant as vehicles get larger (for example trucks and buses).
\nStill there is intense research on reducing the use of expensive rare earth in
\nPMM and increasing their efficiency even more and this will make them even
\nbetter for EV.<\/span><\/div>\n
\n<\/div>\n
\nWhy this is relevant for Bharat
\nBijlee? Because apart from very advanced technology in AC induction motors it
\nis a leading player in PMM in India which at present it is catering for
\nelevators but it has recently increased the capacity of PMM and it is ready for
\nother uses offered by PMM and EV\u2019s will be one of this. Management of BB is
\nvery conservative and they are taking small steps towards the bigger. But there
\nis nothing that should stop BB to venture into EV market also in India because
\nthis is the future of mobility and this will create the new Auto ancillary industry
\nin the form of electric motors, Charging components, Capacitors etc. <\/span><\/div>\n
\n<\/div>\n
\nB) Permanent
\nMagnet Gearless Elevator Machines:<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nThis is the area which I think can
\nbe a surprise package because elevators and escalators are going to see huge
\ngrowth in India. <\/span>Growing urbanization
\nespecially in Tier 1 and Tier 2 exerting pressures on land prices and land
\navailability resulting in the vertical growth (Sky-scrappers) along with smart
\ncity mission,<\/span> rapid expansion in the residential and commercial real-estate
\nsectors, Mall culture, Metro rails and Airports will increase the demands for
\nelevators and escalators. <\/span><\/div>\n
\n<\/div>\n
\nIndia\u2019s elevator segment is growing
\naround 12% for last decade and the current size of Indian elevator market is
\naround 55000 units. Indian market was just 6500 units in 1996 so quite a growth
\nin itself. India is the second-largest elevator market after China but here the
\ngap between India and China is also vertical as china market is around 450000-500000
\nunits per year which at one stage was 6 lac units per year!! By the end of 2015
\nchina has around 40 lac elevators while India has figure of somewhere around 5
\nlac.<\/span><\/div>\n
\n<\/div>\n
\nBut this Gap points only
\ntowards one thing-the huge growth potential of Indian market. At present, It is
\nvalued at around Rs 10,000 cr with the likes of KONE India, Johnsons Lifts and
\nSchindler India together having market share of close to 60 %. By 2020-21 the market
\nis expected to grow 35-40 per cent crossing 70,000 elevators per annum mark.<\/span><\/div>\n
\n<\/div>\n
\nRecently, some analysts
\nwere doubting the growth of realty sector in India after the RERA , demonetization
\nand high land prices. Although I think RERA will result in much higher growth
\nfor quality players and the inefficient players will either leave the market or
\npartner with much better quality players like Oberoi realty, Mahindra life
\nspace, Godrej etc. But if one is to look for the signs then elevator market is
\nthe first sign of the coming revival.<\/span><\/div>\n
\n<\/div>\n
\nAnd the Sign is-Massive
\nexpansion plans of Indian Elevator giants like Kone, Johnsons and Schindler India.
\nThey are investing around 800 cr for their capacity expansions and to meet the
\ndemand for much better, energy saver and green elevators. Their recent
\nexpansions will be ready to serve the market by 2019.<\/span><\/div>\n
\n<\/div>\n
\nLike other sectors consuming
\nsignificant power to save power costs, elevator sector is also witnessing the demand
\nfor energy efficient machines. Gearless permanent
\nmagnet motors are the most efficient ones and these can cut energy consumption
\nby up to 30 per cent compared to conventional geared machines<\/span>. These have
\na regenerative drive feature to further reduce energy consumption by up to 15
\nper cent. Bharat Bijlee is already a significant player in conventional geared
\nspace.<\/span><\/div>\n
\n<\/div>\n
\nBB also offers India’s
\nfirst permanent magnet synchronous motors for gearless elevators under brand GreenStar<\/span>. BB has
\nbeen witnessing strong growth in domestic industry and export market. Bharat
\nBijlee\u2019s new plant for permanent-magnet (PM) elevator machines at its Airoli,
\nIndia, campus commenced operations in May. The 950-m2 plant is a green building
\nfor which certification from the Indian Green Building Council is expected
\nsoon. The current production capacity of 700 PM
\nmachines for elevators per month is scalable for further expansion by the
\nmodular design and layout. The company said the plant furthers its strategy for
\ncontinued domestic and export growth in its GreenStar range of elevator
\nmachines and caters to new applications of PM machines going forward.<\/span><\/span><\/div>\n
\n<\/div>\n
\nThese Gearless motors has
\nefficiency levels of 93% as compared to 65% of conventional machines and they
\nsave some 40% energy and a single Elevator can provide the savings of some few
\nthousand Kwh per year which are significant. <\/span><\/div>\n
\n<\/div>\n
\nOf Global elevator market, 70%
\nmarket is for new installation and 30% is towards highly profitable maintenance
\nmarket. India has around 5 lac elevators and around 17000 escalators so there
\nwill be huge demand for modernization of these elevators into new age, much
\nsafer, high speed, energy efficient machines. Maintenance market will also see
\nhigh growth in India.<\/span><\/div>\n
\n<\/div>\n
\nAround 80% of Indian elevators work
\nat a speed of less than 1 metre\/second while the highest-speed elevator
\ninstalled at Burj Khalifa works at 10 mps developed and installed by Otis.
\nHowever, now the demand for 2-3 MPS elevator is rising in India.<\/span><\/div>\n
\n<\/div>\n
\nI think, Bharat Bijlee
\nmay be the only listed one catering to this high growth sector (Leaving out the
\nwire players). This is a small business for BB comprising a turnover of 24 cr
\nin 2017-18 but they are expected to grow fast this year as last year realty
\nsector witnessed some major glitches in the form of Demoney, Rera and GST.<\/span><\/div>\n
\n<\/div>\n
\nC) Variable speed
\nAC drives<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nVariable speed AC drive is <\/span>an
\n<\/span>electronic <\/span>controller <\/span>that
\n<\/span>adjusts <\/span>the <\/span>speed
\n<\/span>of <\/span>an <\/span>electric motor by regulating the power being
\ndelivered and provides continuous control,
\n<\/span>matching <\/span>motor <\/span>speed
\n<\/span>to <\/span>the <\/span>specific
\n<\/span>demands <\/span>of <\/span>the
\n<\/span>work <\/span>being <\/span>performed. In other words, it converts
\nAlternating current (AC) of one frequency to another frequency which gives an
\nopportunity to run the AC motors in variable speed and provide an opportunity
\nfor saving energy on many industrial applications like water pumps where a
\nmechanical throttling device such as a mechanical valve or electro mechanical
\nvalve is used extensively to control flow of water but a fixed AC supply is
\nused to run the motor. Although this method is an effective means of control,
\nit leads to wastage of energy.<\/span><\/div>\n
\n<\/div>\n
\nThese Drives offer soft start,
\nlower the mechanical and electrical stress on the motors and reduce the maintenance
\nand repair costs and extend the motor life. All these factors are resulting in
\nhigh growth for AC Drives in Indian market.<\/span><\/div>\n
\n<\/div>\n
\nTake the example of Normal Air conditioners
\nand the recent Inverter AC\u2019s. In normal AC\u2019s the compressor runs at a
\nparticular pace all the time. Whenever a particular room temperature is achieved
\nthe compressor motor is shut down and AC switches of but when the temperature
\nrises then again Motor runs at full power. But Inverter AC runs on a variable
\nfrequency drive and when target temperature is achieved then in does not
\ncompletely switch off but it reduces its speed\/cooling in order to just
\nmaintain the targeted cooling which results in AC working only at 25% to 30% of
\nthe total power making invertor AC more energy efficient. A censor in the
\ninvertor adjusts the power according to the temperature in the room, lowering
\nthe electrical consumption and saving energy.<\/span><\/p>\n

These Drives are most appropriate and beneficial where motors are subject to variable work loads and in some cases these have shown to save 65% of energy consumed by a motor without Drive!! <\/span><\/div>\n

\n<\/div>\n
\nThe AC market in India is of 50 lac
\nunits and Invertor AC\u2019s are just 10% of it while they should be at 90% level
\njust like the much advanced countries like USA, China, Japan etc. Again, not a
\nsurprise that EESL is again working in this area to promote the use of Invertor
\nAC\u2019s in India.<\/span><\/div>\n
\n<\/div>\n
\nSo the use of Variable speed drives
\nis going to see high growth. Just like Gearless Machines for elevators, Drive
\nbusiness of BB is also small as compared to Transformer and electric motor
\nbusiness. Drive business has turnover of 27 cr in 2017-18.<\/span> Bharat Bijlee offers Variable speed
\nAC drives in partnership with KEB Germany.<\/span><\/div>\n
\n<\/div>\n
\nD) Transformer
\nBusiness<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nIt is quite surprising that we are
\ncovering the biggest business of BB at the last. No doubt stock markets are the
\nmost democratic places of the world where legacy and size gets no separate
\ntreatment. Transformer business is covered last because this is quite
\ncommoditized as compared to other businesses of BB along with the fact that if
\nthings work out well in the future then other businesses will grow at much
\nfaster pace.<\/span><\/div>\n
\n<\/div>\n
\nElectric power (expressed in watt)
\nequals current (expressed in amp\u00e8re) multiplied by voltage (expressed in volt).
\nSo, a certain amount of power can be produced either by a low voltage with a higher
\ncurrent or by a high voltage with a lower current. Higher voltages minimize the
\nlosses from the inductance or resistance in the wire during the transmission
\nprocess so power is transmitted over long distances using high voltages. AC power
\nis preferred over DC mainly due to its higher efficiency over long distances
\ntransmission.<\/span><\/div>\n
\n<\/div>\n
\nAC transformer is the device
\n(Invented in late 1800s) which steps up the voltage in order to carry power
\nover long distances, and then step it back down again for local use. <\/span><\/div>\n
\n<\/div>\n
\nAs mentioned earlier, Transformer
\nindustry as a whole has faced difficult time in last 4-5 years due to low
\ninvestments in power transmission and distribution segment as State Electricity
\nboards(SEB) had\/still has poor financial health and this imperfectly aligned
\nwith the huge investments made for capacity expansions by Transformer players
\nafter seeing the huge growth in power generation capacity in India but the
\ndream came crashing into ground hard and all the transformer players were
\nfighting for lower business at even lower margins.<\/span><\/div>\n
\n<\/div>\n
\nIndia, during 2005-2010, made big
\ninvestments in power generation capacity but we ignored the equally important
\npower transmission and distribution segment which requires equal investments
\n(around 7 cr per MW). Poor financial position of State electricity
\nboards\/Discom made the situation even worse. So now the situation is very
\nstrange as at one hand are the power producers who are grappling with the low
\nplant load factor (60-70%) and then on the other hand there is rural India which gets power for few
\nhours per day, Industries like cold storage which finds high power charges a
\nbig drag for the farmers to opt for cold storage.<\/span><\/div>\n
\n<\/div>\n
\nRural India can be a big demand
\nboost factor and keeping the same in view 100% rural electrification plan was
\nlaunched and it has achieved mixed success and response because as per the
\nscheme a village is considered electrified even if 10% of the houses including
\nschool etc. are electrified. So now after the \u201cVillage electrification\u201d the
\nfocus is on \u201cVillage houses\u201d electrification.<\/span><\/div>\n
\n<\/div>\n
\nSince transformers play a key role
\nin the power sector so the opportunities for transformer industry in India out
\nof rural electrification programme are huge. Government is already working on
\nimproving the financial health of Discom and the schemes like UDAY are leaving
\nmarked improvement already. Project UDAY has resulted in the turnaround of
\nsome of the worst loss making Discom of Chhattisgarh, Haryana and Gujarat.<\/span><\/div>\n
\n<\/div>\n
\nBB is already a big player in
\nIndian transformer sector and with the recent turnaround of the sector after
\nthe consolidation in the sector as small and inefficient players has moved out
\nof the game mainly due to strict quality control measures adopted by the Discom
\nin the recent transformer procurements.<\/span><\/div>\n
\n<\/div>\n
\nE) Financials and
\nconclusion:<\/span><\/u><\/b><\/div>\n
\n<\/div>\n
\nBB has strong balance sheet. Its turnover
\nof 800 cr is comprised mainly of two segemnts-Transformer business had around
\n60% share and Industrial systems had some 40% share in 2017-18. But the same
\nhas been changed to 53% and 47% respectively in June-18 results which I think
\nis due to high growth in areas like Electric motors, Elevator machines and
\nDrive business. BB has turnaround big time in last 2 quarters witnessing high
\ngrowth both in topline and bottom line. But june-18 quarter has shown stunning
\nresults-Turnover at 196 cr vs 149 cr last year and PBT excluding other income
\nat 9 cr vs -10 cr last year. Turnover of transformer segment was at 104 cr and
\nindustrial segment was at 92 cr however profit before Interest and tax was 9 cr
\nfor Transformer business and 12.5 cr for Industrial business which shows the
\nhuge scope for industrial business in the future.<\/span><\/div>\n
\n<\/div>\n
\nBB has debt of around 214 cr (Short
\nterm working capital) but it has liquid corporate deposits of 174 cr so it is
\nvirtually debt free. However it has investments in the shares of Siemens (200
\ncr), HDFC bank (100 cr) etc. the market value of which is 330 cr plus 17 cr of
\nmutual fund. The cost of investments in stocks was just Rs. 4 cr. Its market
\nvalue at CMP of 1350 is 750 cr so investments of 350 cr means that its main
\nbusiness is available at a valuation of 400-500 cr at a PE of around 10-15 which is
\nway cheap for a strong reputed business house having the expertise and exposure
\nto the some of the highest growth segment of the Indian economy. <\/span>I have just made a crude calculation of forward PE on the basis of recent June-18 quarter results, annualized EPS will be around 100 although taking into account the strong growth in the top line (Recent 2 qtrs were good so we can take it as revival) and the impact of operating leverage in the bottom line can take the EPS much higher.<\/span><\/span><\/span><\/div>\n
\n<\/div>\n
\nThere may be views that BB has
\nmarked these investments as Non-current means that these are not for sale but
\nstill they provide the strength and safety to the business. BB has ventured
\ninto new emerging businesses which if succeeded will require investments for
\nexpansion and BB will surely touch these at that time. It is fully expanded in
\ntransformer business and the capacity usage will only grow from hereon. Also,
\nits dividend income was at 8 cr last year which in 2017-18 was at 2.4 cr mainly
\ndue to reduction in the dividend declared by Siemens from Rs. 34 to Rs. 7 due
\nto exceptional income in 2016-17. But I think that in the next 1-2 years it
\nshould settle around 6-7 cr.<\/span><\/div>\n
\n<\/div>\n
\nBB used to pay Rs. 25-30 as
\ndividends (payout ratio around 20%-25%) during 2008-2012 when it was earning
\ngood from its transformer business. So we can expect similar distributions from
\nit in the future also which at present valuation makes it a yield of 2% which
\nis good. Voltamp is another strong player in transformer business available at
\nreasonable valuation of 1012 with strong balance sheet with nil debt liquid
\ninvestments but it mainly deals with transformer business so I have left it for
\nthe time being but in case there is some growth catalyst then we\u2019ll cover this
\none also.<\/span><\/div>\n
\n<\/div>\n
\nI started studying it at 950 in jan-2018
\nbut after Dec-17 results it just ran out of reach too fast and touched 1750 but
\nthe recent fall provided good entry point and I made my first entry at 1280 in
\nlast week. I have invested around 50% of my target amount and I\u2019ll be investing
\nmore after sep-18 results and at every growth catalyst like its significant move
\nin any of the emerging businesses like EV and Elevators and it getting more
\norders for electric motor business even at the levels of Rs. 1500, 1700 or 2000. CMP is 1350 and it is a good buy at this price and at every fall if any happens in the future.<\/span><\/div>\n
\n<\/div>\n
\nAs one can see most of the growth
\navenues for BB are pointing towards future so it is more like a concept stock
\nalthough the economic realities around these emerging businesses provides
\nreasonable level of surety that BB will achieve success in these emerging
\nventures but still I think it is prudent to consider it as moderately risky
\ninvestment although we are getting the comfort from its established and
\nprofitable business in transformer and electric motor business and its cheap
\nvaluations at 10-15 PE, strong liquid investments also provides the margin of
\nsafety.<\/span>
\n <\/span> <\/span>
\nPS: Bharat Bijlee is not a PSU.<\/span><\/p>\n<\/div>\n
\n
<\/span><\/div>\n
\n(Views
\n are personal and should not be taken as a recommendation for buying or
\nselling a stock. Stock markets are inherently risky so kindly do your
\nDue Diligence before investing. I am not a certified Sebi Analyst and
\nholding the shares discussed in this Post.<\/span><\/span><\/span><\/span><\/span><\/span> <\/span>Reach me at oscillationss@yahoo.in<\/span>).<\/span>
\n<\/span><\/div>\n
\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

As we see our world is witnessing radical changes. We can easily feel that major shift is going to happen in our world. Development, innovation and improvement is a perpetual phenomenon and most of the times development follows compounding growth rate not linear because knowledge base of 10 things\/aspects can\u2019t promote 20 stories out of them but a base of 100 can create the scope for 50 new stories because the knowledge of many of these aspects will intertwine and offer more scope for something new and vast. And we are literally at that phase of growth\u2026look at energy sector…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1042","post","type-post","status-publish","format-standard","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1042","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1042"}],"version-history":[{"count":0,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1042\/revisions"}],"wp:attachment":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1042"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1042"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1042"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}