This stock has delivered a nearly 100 percent return year-to-date. And it's credible, not some shady microcap

The Schneider Electric Infrastructure stock has had an electrifying run of late, nearly doubling so far this year, and growing five-fold in the last 12 months, as investments pour into the power sector.

The company has been one of the biggest beneficiaries of the government’s investment in the power sector, partly helped by its multinational lineage and products, which are used in data centres and production of semiconductors.

On April 10, Schneider Electric Infrastructure closed at Rs 781, up 93 percent in the year so far. Its products in the power segment include transformers and switchgears. The company’s diversified products in systems, services and transactional segments also contributed to its growth.

Riding the power wave

“India’s power demand is expected to double by 2045 and it is aiming for an ambitious 500 GW of renewable capacity by 2030. Capital expenditure for FY 2024-25 is estimated at Rs 11 trillion, and we see a large part of it flowing into the energy sector,” said Hemal Shah, Fund Manager of Torus ORO PMS. This can lead to huge demand in this sector in the form of grids, insulators, switchgears, transmission, smart meters, wires and cables.

Schneider Electric Infra’s order book expanded 38.8 percent on-year to Rs 1,358.6 crore in the fiscal third quarter. The growth in the order book was driven by the power and grid segment, mobility and other electrosensitive segments, CFO Suparna Bhattacharyya said in a conference call in February.

The order books of the company’s peers CG Power and Industrial Solutions and Voltamp, grew by 34 percent while Transformers and Rectifiers India’s book expanded by 71 percent in the quarter.

Schneider Electric’s  Q3 revenue rose 29.5 percent on-year to Rs 743.9 crore, with nearly half coming from the Power and Grid segment. Net profit more than doubled from a year ago to Rs 91 crore. Schneider’s revenue and profit growth in the past year has far outpaced its competitors (except Transformers and Rectifiers, whose Q3 net profit zoomed quarter-on-quarter on a low base).

Schneider

Revenue comparision

The company’s earnings have also helped the stock beat analyst target prices. In February 2024, when it was trading at Rs 590, LKP Securities had set a target price of Rs 690 for the stock. It has already gone past that.

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Profit comparision

New management and diversified business portfolio

Elara Capital said the company’s new management, represented by MD and CEO Udai Singh, who took on the role in September 2023, has continued the growth strategy with stable margins. The firm has pivoted from taking orders on an engineering, procurement and construction (EPC) basis to “a transactional mode (product via distribution),” Elara said.

Schneider has moved from a production and construction (EPC) model to a product-supplier model (selling products through distributors), where the risk on receivables is lower, along with better cash flow.

The strategy has increased the company’s gross margins from 30 percent in Q3FY23 to 36 percent in Q3FY24. Transactional revenue for the company also increased 60 percent on-year to Rs 160 crore in Q3.

“Schneider Electric Infrastructure has consistently performed in terms of earnings in the last nine quarters. It has been diversifying its portfolio. It has been able to get repeat customers across its various product portfolios,” said Avinash Pathak, Research Analyst at LKP Securities. The company is also providing digital services.

Should investors buy the Schneider Electric Infrastructure stock?

After the huge rally, experts recommend it is better to wait and watch the stock and add it during dips. “Schneider’s valuations look stretched. The stock has fully priced in most of the positives. Investors should not rush to buy this stock now,” said Kranthi Bathini, Director of Equity strategies at WealthMill Securities.

Shailesh Saraf, Managing director of Dynamic Equities, also said the stock was trading at expensive valuations of 90 trailing PE , but added that this is justified due to the company’s strong earnings growth. “When the profit growth is above 100 percent, it is justified. It is a good stock in a sector that has huge demand for its products,” said Saraf.

The stock may be able to sustain its run due to the activity in the infrastructure and power segments, said Bathini. “The best approach for investors is to buy it on dips.”