Growth potential and earnings factored into GE Vernova's valuations

A large HVDC order win, rising transmission capex and renewable energy push strengthen GE Vernova T&D's earnings outlook, but high valuations already price in much of the upside

GE Vernova T&D (GEVTD) has bagged a large order from Adani Energy Solutions for the Khavda phase III project in Gujarat with an overall project size at ₹12,000 crore. The exact order size is not known, but it is estimated to be around ₹8,000 crore-₹10,000 crore. This is very significant given GEVTD’s existing order book was around ₹13,100 crore and FY26 estimated sales ₹5,500 crore- ₹6,000 crore.

 

Assuming a 3-4 year execution profile, it could amount to 20-30 per cent upside to FY28-29 estimated earnings. There are two more line commutated converter high-voltage direct current (LCC HVDC) orders expected over the next 12-18 months, with only Hitachi Energy and GVTD as contenders as Siemens Energy is only in the voltage source converters segment. Hence, there may be another big boost to future growth prospects and earnings visibility.

 

This project would evacuate 2.5 Gw of renewable energy from Khavda to South Olpad via a 600 km transmission line.

 

Earlier, GEVTD also received an order from Power Grid Corporation (PGCIL) for refurbishment of 2x500 Mw HVDC Chandrapur line, which involved design, supply and refurbishment of line between the southern and northern part of India and upgrade of HVDC thyristor valves and HVDC control and protection with timelines of three years.

 

Given the order book and growth prospects, GEVTD may deliver earnings growth of 41 per cent annually over FY25-28. Analysts are upgrading estimates though exact order size and timelines will be required to fine tune these. It has certainly materially changed the growth trajectory.

 

This is one of many opportunities showing up in T&D given the focus on renewables. A transmission capex of ₹9.2 trillion is lined up by 2030, given the Ministry of Power plans for the evacuation of power from the planned renewable capacity addition of 500 Gw by 2032. By 2030, renewable energy (RE) will contribute 62 per cent of total installed power generation capacity compared to the current contribution of 44 per cent (200 Gw). The shift towards short gestation RE generation will require stronger inter-state transmission systems, which brings technologies such as HVDC, static compensators, and PMUs (phaser measurement unit) into focus to keep the grid stable.

 

Several HVDC transmission corridors have been planned for evacuation from large RE potential zones, which should also benefit players like GEVTD.

 

The GEVTD order book of ₹13,100 crore, prior to this order, was already up 33 per cent Y-o-Y and 2.6 times the trailing twelve months (TTM) revenue. It has earmarked ₹1,000 crore capex for the medium-term.

 

GEVTD had cash flow generation of ₹600 crore in H1FY26 and cash equivalent of ₹1,520 crore so the capex will not stress the balance sheet. Capex will be required to enhance capacity by 50 per cent at its transformers & reactors facility in Vadodara, and augment capacity by up to 25 per cent for gas insulated switchgear and air insulated switchgear (GIS & AIS) products at Hosur and Padappai plants, and set up new manufacturing lines for air core reactors and bushings at Hosur and expand manufacturing and engineering capabilities for advanced grid technologies, including HVDC and flexible alternating current systems (FACTS). This capex will be funded through internal accruals over the next three years.

 

Apart from the domestic rollout, GEVTD could see significant upside from exports which contribute 30 per cent to the current mix. While India is in the forefront in scaling RE deployment, similar stories are playing out elsewhere. GEVTD’s export mix has increased to 30 per cent (vs 20 per cent 2-3 years ago), led by large orders from the parent and customers across Europe, the Middle East, Southeast Asia, Latin America and Australia. If it can sustain operating margins at 20 per cent (19.1 per cent in FY25), it looks an attractive prospect and the overseas profile comes with better margins.

 

The company appears to be in a sweet spot with a strong order book, good balance sheet, high return ratios and a growing addressable market for its product portfolio. The one major concern could be high valuations which discounts the strong growth potential and earnings visibility.