In light of increasing pollution levels, especially in metros and substantial cities, the draft electrical energy Bill states that the electrical energy distributor shall assure uninterrupted (24×7) energy provide so there is no requirement of operating diesel creating (DG) sets. The State Commission might contemplate a separate reliability charge for the distribution firm, if it requires funds for investment in infrastructure, to assure the reliability of electrical energy provide to buyers.
Urges customer to shift to cleaner power sources: The Draft Bill additional states buyers employing DG sets as backup energy shall endeavour to shift to cleaner technologies (such as RE with battery storage) inside 5 years of the date of publication of the Amendment or as per the timelines offered by the State Commission – the timelines are nonetheless ambiguous.
Onus to reduced DG set consumption on DISCOM: The Bill mandates the distribution licensee to simplify the procedure of giving short-term connections to buyers for building activities or any other short-term usage.
Minor threat to DG set players in metro markets: Since this draft bill does not speak about a blanket ban on diesel genset usage, no material effect is anticipated more than the close to term. However, it does take away a portion of the addressable industry in metros as nicely as potential prospects more than the medium term.
First step not most likely to be last: We think the draft version might be followed by stringent measures in due course of time. We carry a structurally unfavorable view on diesel gensets. The draft Bill solidifies our lengthy-term thesis on market evolution in India. Additionally, disruptions from solar power and battery storage, amongst other folks, would only limit category development. Notably, Domestic Powergen types 27% of Cummins’ income. Moreover, the Distribution segment (28% of rev) drives development from the installed bases of the Powergen and Industrial segments. Thus, there might be a threat to development for 40–45% of Cummins’ income more than the longer term.
Valuation and view: We preserve our lengthy-term thesis on the enterprise, as increasing energy availability poses a threat to the company structurally. We forecast an FY21–24E income /Ebitda/ adj. PAT CAGR of 15%/18%/14%. We preserve Sell , with TP of Rs 695/share. Cummins is a possible exports story (much better captured in the unlisted entity) and fails to impress us as a proxy to domestic capex.