GE Power gets LoI for contact worth of Rs 444 crore; stock surges 13%

Shares of GE Power India hit a 52-week high of Rs 181 as they surged 13 per cent on the BSE in Wednesday’s intra-day trade, in an otherwise a weak market, after the company received a Letter of Intent (LoI) from Gujarat State Electricity Corporation for contract worth of Rs 444 crore.

In an exchange filing, GE Power India said the company has received contract for design, engineering, manufacture, supply, shop testing, packing and forwarding, installation, commissioning and PG testing of flue gas desulphurisation (FGD) system on engineering procurement & construction (EPC) basis. The said order is to be executed within 30 months from the date of LoI i.e. January 2026. The basic value of the contract is Rs 444 crore plus GST (18 per cent).

At 10:05 AM, GE Power India was quoting 12 per cent higher at Rs 179, as compared to 0.55 per cent decline in the S&P BSE Sensex. The average trading volume on the counter jumped over 10-fold today with a combined 2.8 million shares changing hands on the NSE and BSE.

Thus far in the financial year 2023-24, the stock has outperformed the market by zooming 82 per cent as against 12 per cent rise in the benchmark index.

In the month of June, Icra had revised the long-term rating for Line of Credit of the company as [ICRA]BBB+ (Negative) from [ICRA]A-, and reaffirmed the outlook to Negative and short-term rating for Line of Credit as [ICRA]A2 from [ICRA]A2+ of the Company.

The reasons for such downward revision inter-alia are slow order intake, increased provisions, declined in revenue and profitability in the financial year 2022-23, susceptibility to execution delays, and subdued demand outlook, GE Power India had said in its exchange filing.

The 'Negative' outlook comes on the back of expectations of continued losses in FY2024 owing to a sustained weak order book position, translating into lower revenue booking and therefore under-absorption of fixed overhead costs. The company had witnessed significant cost pressures in FY2023 due to hardening of commodity prices as well, Icra had said in a rationale.

The company’s profitability also witnessed a major headwind owing to a fire incident at one of its FGD installation site at NTPC Limited’s Solapur plant. While the provision of Rs 99.97 crore (including damage to equipment and expected liquidated damages (LD) that maybe levied by NTPC) is expected to be largely recovered through insurance proceeds, the timing and quantum of the receipt remains to be seen.

While the parent, General Electric Company (GE1), has announced that it will de-promoterise GE Power India by February 2025, it intends to strengthen GE Power India technologically and financially by transferring IPRs, extending technological support and helping GE Power India in catering to new export markets. Icra will closely monitor the developments (including availability of cash pool) in this regard.

Icra also noted the decrease in outstanding receivables (majorly retention money) in FY2023 because of which the debt levels have been flat despite the significant losses and decline in net worth in the fiscal. Further, with most of the FGD contracts nearing completion, a sizeable amount of retention money is expected to be released in FY2024, which will further bring down the working capital requirement, the rating agency said.