Implications of the Coming Capex in Coal

I wrote this mail to myself after reading several articles on the coming capex in coal and thought of sharing it with you.

Begin forwarded message:

From: Sanjay Bakshi <sanjay.bakshi>

Subject: Very balanced article on India’s dependence on Coal

Date: 27 May 2015 17:47:06 IST

To: Sanjay Bakshi <sanjay.bakshi>

Apart from huge investments in solar power, India is going to see huge expansion of coal mining capacity.

Abundant and cheap energy could make many businesses vulnerable to disruption (e.g. genset, inverter, and battery manufacturers). Overall, I am very cagey about investing in businesses that generate or store energy. But there will be other businesses which will benefit from this huge capex – businesses which facilitate the capex or benefit from that capex.

The idea is analogous to what Ralph Wanger calls “downstream effect.” Here is an extract from one of his interviews which I quoted in an article I wrote for ET in 1997.

“The airline example was a good case of a transforming technology. The jet engine was a terrific invention, and General Electric and Pratt & Whitney and Rolls Royce, I suppose, made reasonable money making jet engines. But for every dollar the jet engine manufacturer made, probably the airline made more. And the airline customers turned out to be the big beneficiary.

A good reason the western United States grew rapidly in the last 40 years was the jet plane. It made travel very practical… So the concept of transforming technology is that the big money is downstream…

…The railroads transformed the United States in very dramatic ways. The guys who made steam locomotives and railroad cars made some money, but you may not be able to name the major makers of locomotives, because they barely exist today…

…As you go downstream the dollars spread out. Now you probably can name the railroads that made a lot of money buying the steam locomotives and using them to build the railroad industry. The railroads made some good money. But the people who made even bigger money were the people along the right of way who could use the railroad to develop mines and factories and cities. So the guys who owned the silver mine here in Aspen saw the value of their mine at practically nothing before the railroad showed up, because they couldn’t ship the ore out on a practical basis without the railroad. But as soon as the railroad showed up the mines became economically profitable, the city grew, and the people who owned the land and built stores made a lot of money…

…Another example – one that is the most obvious and the most lasting trend is the whole idea of electronics, computers, communications, and information processing of all sorts. Here your transforming technology is really the semiconductor. It made computers practical, it made telephones much cheaper. All of the things you didn’t have in your house you can’t get along without today. Things like your cellular phone, your fax machine, your PC, your e-mail and your phone mail.

…Well until a few years ago I would guess the amount of money made by the American semiconductor industry was zero. There are many companies that made some money, but there were many companies that went out of business and made no money at all. Now everyone remembers how well Intel and Motorola have done, but they’ve forgotten about the Fairchilds and dozens of others who started barely and failed. Some of them took a lot of money down with them.

Intel was the exception. But when you think about the amount of money that Intel has made, I think you would easily find that Intel’s customers made more. The people
who are making real money on it are people like you. The reason you are in business is because of cable TV. That is a new technology and has enabled people to sell blue jeans and pantyhose to millions that they couldn’t have reached otherwise. And it needed electronics to make it possible. And we’ve made a whole lot of money owning cable TV stocks than we ever would have owning semiconductor stocks.”

One should think both upstream (businesses that benefit from supplying goods and services to facilitate the capex that is coming) and downstream (businesses that benefit from cheap energy – a cost benefit they will be able to retain because they have a moat).

Key questions:

  1. Which businesses will benefit from being facilitators of this capex?
  2. Which businesses will benefit from being beneficiaries of this capex?

72 thoughts on “Implications of the Coming Capex in Coal”

  1. Dear Sir,
    My understanding says:
    for 1. project management companies which facilitate coal projects..companies which own giant movable tankers which can transmit coal…
    for 2. power generation industries, companies across industries which posses captive power generation capability( it involves lot of industries like cement manufacturers, road developers, epc contractors, tyre makers, defence players and many other manufacturing industries where power is a big input cost)

    1. When you look for downstream beneficiaries – those who will benefit from cheap energy from coal or other sources but currently pay a lot for that input, make sure you do not ignore the structure of the industry. In a perfectly (or almost perfectly) competitive, commodity type of industry, the benefit of the lower input prices will eventually go to the consumers of that industry. In those cases, the boost to earnings will be temporary at best. You want to stay away from those situations.

      What you’re really looking for are businesses which have very high energy costs, but when those costs go down they can retain a significant part of that benefit for themselves without suffering any loss of business volume or market share. Those two things — protection of business volume and market share — are terribly important.

  2. facilitators of this capex will be companies that make earthmoving/mining equipment – TRF, TIL, Elecon, Action Construction, etc. Manufacturers of coal washery equipment will also benefit in a big way since government wants more coal to be washed before use. Here TRF enjoys a lot of advantages.

    beneficiaries of the capex will be companies that make goods requiring more power – air conditioners, washing machines, etc.

    let us also invert and ask who could lose because of improved power from coal. Genset manufacturers, makers of inverters – eg VGuard???,

  3. While 1 is straightforward (companies in heavy machinery, earth moving equipments, castings & forgings), for 2 there are a host of companies which will benefit – across the manufacturing spectrum (Apart from the power players). A simple example could be a spinner of cotton yarn, for whom power costs are quite high.

      1. Sir,

        I reckon power players will benefit because of more regular suppliers of coal rather than cheaper coal by itself. While I understand that RoE for power players is fixed, wouldn’t more consistent coal suppliers lead to better efficiencies?

  4. Another example from telecommunications industry that comes to mind:

    Facilitators: Shared tower infrastructure companies like Bharti Infratel, Indus Towers, Viom

    Downstream beneficiaries: Companies that own content (news websites, movie libraries, tv channels etc) which can be distributed over a data network seamlessly as bandwidth and data speed increase. Multiple distribution media can be used to monetize existing owned content at minimum incremental capex.

  5. While everyone is unanimous in facilitators of capex. I think among beneficiaries will be our banking system marred by NPAs over the years coupled with increased industrial activity along various businesses which in turn will give boost to economy in form of increasing employment, demand. I think biggest beneficiary as such will be consumer industry viz. consumer discretionary.

  6. Dear Sir,

    I think this may be a game changer for the rural Indian economy. Farmers would no longer incur capital expenditure for buying expensive DG sets as well operating expenses for buying fuel. Resultant lower pollution will also lead to lower healthcare costs and higher productivity.

    In addition, companies manufacturing white goods such as table fans and refrigerators will witness increased sales from rural India as cheap and reliable supply of electricity will make purchase of these products viable. Rising disposable incomes and standard of living in rural India may lead to proliferation of hand-held/ desktop devices which are connected to the internet and once circulation of these devices exceeds critical mass, the rural Indian economy may witness a transformation that none of us can envisage as of now.

  7. EPC companys like kec international kalpataru jyoti str sujana towers EMCO cable co like


  8. Hi Prof,

    As usual thought provoking article. my thoughts:-

    1) Upstream- the obvious ones are known ( heavy machinery, earth moving etc). But that everyone knows. So is there really an edge. I am thinking real benefit will be of those who are for lack of better phrase ” boiling frog cases”. They will benefit but it wont be apparent. They are the ones without which these CAPEX cant sustain. Another outcome of this could be that large CAPEX often lead to brutal competition. So while the obvious ones will grow unless they value add they will be treated as commodity.

    2) Downstream- Not just the ones which require lot of power ( textiles, paper etc), but once who can expand working hours because of this. Example, number of uptime shifts. Another further downstream could be agri where electricity can transform way farming is done.


    1. Saurabh, you write: “But that everyone knows. So is there really an edge?”

      The edge comes from doing the hard work. Just because everyone knows that some businesses will naturally benefit because of some positive change in the industry does not have to mean that it’s already reflected in the price. It may be, or may not be. You won’t know until you did the work…

      The world of value investing is full of examples of well-recognized, but still mis-priced, quality. So my advice to you is that you should not assume that the market is perfectly efficient. More often that not, it isn’t.

      1. Thanks Prof. Lesson learnt :). Communicate better. what u think should come out in what you write. What i was trying to say was second level thinking of Howard Marks. But that as you rightly pointed out comes with hard work in finding out what market doesn’t know.

  9. Beneficiaries :-

    Exhibition/Malls/shops :- Can provide cool environment along with bright lighting, advt etc.

    Air cooling equipment (Due to low cost of power and addictive nature of human for comfort from heat :- Positive loop :- More coal = more heat = Cheap cost of power = more air cooling comforts sales due to affordability.

    Out door advt :- due to low cost for powering billboards. Only cost will result in rent for space.

    Automobiles = Mainly city based cars which can function on electricity.

    Fabricators/ welders.

    Open Ground/Marriage grounds :- major cost consists of electricity rest outsourced. (virtually negligible fixed cost component= huge ROE)

    luminaries lighting and fixtures :- Huge jump in consumption due to social proof and envy. Status symbol to have bright lights in home during evening.

    Public roads lighting.

    Clubs/Gyms/sports bar :-

    Textile/power-loom/ etc :-

  10. Apart from the obvious ones, financiers like Shriram Transport Finance, PTC India financials should also benefit.

  11. Coal mining may increase , but one needs to check after all this new regulatory cost like DMT & royalty , will it be still competitive . Now assuming it will be competitive , dynamics of power industry will change .

    what will happen to alternative energy companies like solar wind hydro etc . ,

    if there is power generation surplus what will happen to project economics of already indebted power producers

    assume all this ok that if all industry gets cheap and reliable power + along with indian logistics improving , Indian companies will improve their export competitiveness , esp the ones in commodity business .Their low cost structure will mean that they will have atleast a decade of profitable growth .

    Domestic stories will also be interesting . Lower power prices will enable high usage of air conditioners , smart home devices and possible electric cars too.

  12. isnt this similar to knowing that the internal combustion engine in early 1900 wud make the cost of travel/automobiles cheaper eventually but like buffett says its a lot difficult to pick ford or GM from thousands of auto companies that existed then. Identifying ‘the winner’ is lot difficult in this case (IMHO). In your example above, it feels like white goods / products like AC, Refrigerators, heaters are beneficiaries of cheap power but which one and why in the long run seems a tougher pick. How would you think about how to pick the winner amongst the contenders?

    1. Then pick the top most financier of the time, significant portion of these are going to be bought on credit.

  13. Dear prof,

    India would see huge productivity gains.
    Clear beneficiaries are energy intensive manufacturing and exports which would see utilization going up.

    Profitability and competitiveness would go up because of operating leverage.


  14. Sir, I don’t think coal mining capex will result in cheap and abundant energy. First of all, coal mining is long gestation business. Any resultant increase in coal production will come after many years. Besides, transporting increased coal to power producers requires another set of capex in railway and port infrastructure which does not seem to be happening concurrently. Downstream users are power producers which are highly regulated businesses. Further, last mile connectivity of power producers to users is through transmission and distribution which are mainly with SEBs which are not at all efficient. All this put together means benefits of coal mining capex will be only incremental and unlikely to result in cheap and abundant energy.

    On the contrary, I believe that real potential of disruption lies with solar energy. Big problem of electricity is centralized production and then transmission and distribution to users spread out over big area. This requires huge capex and makes unit cost very high for user. With improvement in solar cells and battery technology, this business model can become redundant. Each house producing its own electricity and each vehicle driving on its own energy could result in step jump in quality of life. If and when that happens, coal mines, power plants, hydrocarbon refineries etc will look like dinosaurs of jurassic age. This might come true in next 10 to 15 years. Resultant disruption will be enormous.

    Your post above gives me opportunity to ask your view / opinion about potential energy disruption through solar power, probabilities of that happening in your eyes and most likely winners / losers. I would like to know what you think on the subject.

  15. “Disney was an amazing example of auto-catalysis…. They had all those movies in the can. They owned the copyright. And just as Coke could prosper when refrigeration came, when the videocassette was invented, Disney didn’t have to invent anything or do anything except take the thing out of the can and stick it on the cassette.” — Charlie Munger

    Similarly, I think Frozen food & Diary product companies should be beneficiaries of this capex.

    Also, as in case of ‘The California Gold Rush (1848–1855)’ – Levi Strauss was beneficiary. Rewards in retail, shipping, entertainment, lodging or transportation.Boardinghouses, food preparation, sewing, and laundry were highly profitable businesses often run by women (married, single, or widowed) who realized men would pay well for a service done by a woman. Brothels also brought in large profits, especially when combined with saloons and gaming houses.

    Similarly, I think there would be many industries which will benefit from surplus energy in India like Textile Factories(which often complain about power shortage), Electrical equipment companies (like Havells India Ltd..), Rural Electrification Corporation (Finance Company) etc..

    On-lighter note, In future we won’t be having any leader who can say I studied under Lamp Post!

    1. Those are very good examples, and illustrate the idea of “surfing” described by Charlie Munger. But Shakespeare got these first.

      “There is a tide in the affairs of men 
which, taken at the flood, leads on to fortune.” -Julius Caesar Act 4, scene 3

  16. Prof.

    As a consumer I would be glad if this hypothesis comes true and power companies are willing to pass on benefit to me 😉

    My discretionary wallet would increase so happy times for Pizza hut, PVR and Flipkart 🙂

  17. Thanks you Sir for such a though provoking article.

    I don’t think it will result in cheap energy. But in rural India biggest problem is availability of electricity which can be solved to some extend due to capex in coal sector. And I think the biggest beneficiaries of this could be agricultural, agricultural related business, Diary product and not to forgot white good manufacturer as penetration of white goods in rural India is at very low.

  18. Thanks!! Guess this is a perfect example that Charlie would mention – duck sitting on the pond – Coke flourishing with refrigerator, Disney with digital media

  19. I believe IDFC could be an interesting play. With IDFC Ltd having almost 37% of its loan book in energy sector and IDFC Bank coming into play by focussing on infra and rural lending. PTC India Financial Services, with its focus on lending for alternate energy, should also be a notable beneficiary.

  20. Apart from Power/Cement and steel industry i am interested particularly on Coal combustion products and Liquid Coal. South Africa has been producing coal-derived fuels since 1955 and has the only commercial coal to liquids industry in operation today. Hope India will follow SA and reduce the dependence on Crude.

    Few links on these products.

    These will surely help Power hungry sectors like textile/automobile and power equipment manufacturers.

  21. I have a different take on this – if you overlay sensible basic economics, you will find that the maximum value gets created by companies that :

    – operate in consolidated industries with considerable switching costs/cost leadership
    – have pricing power with the end customer
    – often make a critical, indispensable product/service for the customer

    For eg., take a caterpillar vs an EPC company – the latter’s work can be replicated a lot easier by another competitor whereas caterpillar’s years of R & D, a robust fool proof product, dealer, after sales network all take eons to replicate – that’s the moat. And look around you will see that getting manifested in shareholder value.

    Prof, identifying patterns of what creates shareholder value has been my great passion all life and while there could be exceptions, the three rules said above largely hold true.

    If you invert and look at an activity and see if it can be easily copied/replicable and what’s the downside of the activity getting messed up (the significance of downside often drives pricing power – who wants a shampoo of an unknown brand that can cause itching), you can spot a lot of winners fairly early.

    1. How is your take different from mine? I wrote the same thing using different words, didn’t I?

      Here is what I wrote:

      One should think both upstream (businesses that benefit from supplying goods and services to facilitate the capex that is coming) and downstream (businesses that benefit from cheap energy – a cost benefit they will be able to retain because they have a moat). [Emphasis mine].

      Essentially, one should focus on B2B businesses which will benefit from this capex cycle. They must have strong balance sheets and solid business models. They must also be run by able and honest managers. And their stocks will turn out to be excellent investments if they could be acquired at reasonable valuation in relation to probable future earning power (and not necessarily current depressed earning power). Anyone who focuses on current earning power will find these businesses as “too expensive.” Therein lies an opportunity, I think…

  22. The “upstream” businesses which will benefit from this capex cycle reminds me that famous Mark Twain quote: “During the gold rush it’s a good time to be in the pick and shovel business.”

  23. Encourage everyone to analyze Apar Industries. They are the dominant player in conductors and transformer oils (50% market share). They also have a cable and auto lubricant business. It’s a no brainier that they have a growth tail wind. Will they grow profitably? Good technology savvy promoters. They have relied on the export market to save them from the capex down-cycle in India (much like l&t). Will be interesting to watch if a prepared manufacturer in an unprepared industry gets benefited by a huge demand inflow. Would be helpful for all if sir thinks aloud on this case. What questions would you ask to figure out if there could be a temporary moat here sir.

  24. I also believe that more than the cost, its the wider availability of electricity which would change things a lot, particularly in the rural areas where consumers have been deprived of basic things in life (due to low income as well as no electricity). So its the durable industry which will grow a lot. Now when we pick winners there, we should look for products which

    1) are most affordable,
    2) will have a mass market (once the power to sun them is available).

    and then we should look for manufacturers of those products

    a) who have already established themselves as leaders in their business
    b) have a huge untapped consumer base

    The products that come to my mind are consumer appliances and in those air coolers particularly. And the most prominent players – Symphony, Havells ?

  25. An interesting counter question – If we follow the ‘downstream’ argument – none of the biggest winners were big enough players at the time of those Capex. So likely – there’s something we don’t know yet could benefit? Hard to make a guess – It was very hard to imagine two of the biggest successes of Internet would be two companies which even didn’t exist back them. So while the ‘downstream’ argument makes sense – it’s not a very obvious play looking at the state of the art? eg. May be a food processing industry (for – the agriculture seems to be very crippled due to not enough energy, hard to predict, which way it would go, if the energy is indeed made available)

  26. Electricity exchanges – alas none is listed
    Lightening equipment/Electric meters
    Wires and Switches
    White goods

    I would like to do away with cooking gas if a suitable substitute is made available
    Will buy electric vehicle or will the trams resurface?

    Jobs a plenty should be available to the electricians in early days.

  27. If energy truly becomes abundant and cheap, then there will be a massive move towards mechanization in India, a trend which we have missed completely. Any and everything we see being done today using human power has the potential to get disrupted and especially in the villages, there are so many things that are still being done using human power.

    In turn, this will lead to a lot of free time for the newly unburdened labor so proliferation of entertainment like TV channels and movie theaters and internet, etc will be next.

    However, India has such a huge power deficit that I don’t think this situation will happen anytime soon, but that point is irrelevant to this discussion anyway.

  28. I think all the growth and development including coal disruption will leave more money in the hands of consumers….and this extra money will be spent on buying branded aspirational items… the one who would benefit the most and in long term would be the strong moat strong brand strong pricing power companies like Hawkins, Page, Nestle etc…no need to look beyond..

    1. Since I am re-reading Poor Charlie’s Almanack at the moment a few thoughts. Let me invert Prof Bakshi’s query. What can go wrong with the coming capex on coal?

      1. Capex is never linear. Now that some mines are allotted and some more will be in the coming weeks winning bidders will rush to start the mines from October (post monsoons). Bidders may find it difficult to rustle up cash upfront. Banks may charge them higher interest. Assuming funds are arranged there could be a shortage of mining equipment like cranes, excavators,etc since so many mines have become operational. Companies like TIL, Revathi, Elecon, Action, etc will have to rush inventory to mining sites by road, rail clogging infrastructure.

      2. Assuming they start pulling out coal by year-end mine owners and power companies will have to contend with tougher environmental laws. Govt wants washed coal to be used in place of raw coal. NTPC is already turning the screws on Coal India. Companies like TRF will have to invest more in installing washeries. Green laws are also forcing thermal power cos to find ways to use flyash, a polluting by product. But there is not enough buyers, so more action from govt need to get builders to adopt flyash bricks.

      3. Next question is transportation of coal. NTPC is already complaining of wagon shortage. If power plants are built near mines in the next five years, there will be the problem of transmission and distribution losses. Already some 35 per cent of power generated is lost in T&D.

      4. State Electricity Boards are already grappling with huge losses. In April this year spot electricity rates fell sharply because there were no buyers – SEBs didn’t have the funds. More power generated from coal will only choke the wires. (Will the govt unbundle the last mile connectivity for electricity?)

      5. How will power generated from coal be priced? Commercial users who pay as much as Rs 18-24 per unit because of cross subsidy will aggressively switch to solar power as the price of panels fall. Even NTPC is installing solar plants for industrial parks like in Tirupur. So will power for residential users increase because of this migration? In which case Indians will work hard to cut power use like Westerners who think twice about using heaters in winters.

      6. If SEBs have to price power cheaper they won’t their situation get worse and thus affect power generation cos?

      Inversion can throw up so many new possibilities…..

  29. Dish tv….more elec .. coming in rural area..ppl ready to spend rs 250 for unlimited source of entertainment…TV…

  30. I think cold storage chains will get benefited. With reliable and cheap power they can reach hinterland now. Many entrepreneurs may get into this business.

    Another set of people will be greatly benefited. This is based on my prior technology work for such companies. There are companies owning or/and managing cell phone towers. The tower has a room below wich houses very sophisticated communications equipments, two ACs, Lights, batteries, diesel generator, all sorts of sensors, CCTV camera etc. The SLA for these guys is 30-45 minutes from the time power goes off. For 30-45 minutes battery will work and then some one needs to physically reach out and switch on the diesel generator. The situation in many states is dire. On top of that diesel generators invite diesel thieves in many rural areas. They also need to employ thousands of people to fulfill the SLA and run the business. These companies will get benefited if AC power is available reliably.

    1. Great thoughts sir. Using a similar analogy, we can see Bharti Infratel move up as a beneficiary of the explosion in data requirements. Although I think they have to pass on the fuel cost so they won’t really benefit from the fall in fuel cost.

  31. […] Referenced by several of the others on this list as a preeminent value investing expert, Professor Sanjay Bakshi is somewhat of a living legend among his peers. Sanjay is a professor of finance at Management Development Institute (MDI), a leading Indian business school in Gurgaon, located just outside of New Delhi. He is also managing partner at ValueQuest Capital, a New Delhi-based investment advisor whose philosophy is rooted in investing in moated businesses. His blog Fundoo Professor features his investing lectures, general thoughts on value investing, and industry analysis, such as his recent study of India’s dependence on coal. […]

  32. Hi Sir,

    Gr8 article. What i understand is as thermal power stations do a lot of pollution and it will cause health problems. due to this energy generation will shift from Thermal to wind and Solar energy.

    The industries which will gain form Coal industries and thermal power is Air purifier industry and if in coming years focus will be shifted to Solar and wing the companies deal in Solar Panels will make huge profits

  33. Hello Prof – Thought provoking article – Being a techie, tech comes to mind as the first thing

    1st Level – Companies that operate on top of computing elements that is Datacenters and internet farms – could be key beneficiaries – Hear that due to unavailability of power and high power cost, India does not have enough data centers – If this changes, we could be seeing a lot of data centers set up in India – Should reduce cost for Eretailers – Not sure about listed ones in India – US, there are the usual suspects Intel, EMC, WesternDigital, Amazon, Google, Akamai

    Might trigger a lot of new crop of startups in India that run internet based services in India

    2nd Level in B2C – Its electronics and apparels that sell mostly in Etail – Apparel makers could benefit from a booming etail business – Jockey, Kitex, Lovable Lingerie, Arvind, KKCL

    2nd Level in B2B – Human resources organization that supply low tech, on demand HR to MNCs- Thomas Cook – Logistics companies that carry the traffic of etail, Media companies could benefit from the advertising of etail, telecom companies that carry the data traffic of consumers

    3rd Level – Realty companies in Bangalore?

  34. First let me highlight two important quotes:

    1. Varun Gupta (Ashiana Housing) – “More than aggregation, the biggest challenge is that for land that is livable, the cost is not viable. And in projects where the cost is viable, the land is far away from any source of infrastructure. Cities are spreading in such a manner that there is development, and then there is no development for 10 to 15 km because land costs there have become so high that it is unviable. You’ll see this across cities. Infrastructure deficit is a key challenge, and getting approvals is also costly.”

    2. Andy Xie (Economist) – “Urbanization efficiency is the second most important variable, after manufacturing upgrading, in determining the country’s per capita income. I have argued for 15 years that urbanization should focus on developing megacities. I advocated for the development of 30 cities with average populations of 30 million. Trying a different approach will likely waste money and cause delays, not reverse the rise of megacities.
    China’s population is 4.3 times the United States’ with less than half of the habitable land. A strategy focusing on small cities would create a huge environmental challenge and require massive amounts of energy to sustain. Only megacities can develop economies of scale to deal with pollution and economize on energy. Pollution and energy are the two binding constraints that determine what cities can prosper in China”

    If India can produce sufficient energy and distribute it efficiently, I think the biggest beneficiary would be housing sector. Every man dreams of living in a proper house equipped with electricity, water and sanitation.Today that dream is just a dream because of lack of energy.

    Currently cities are getting over crowded due to massive influx of migrants but these migrants do not have proper housing. The cities are too expensive and there is lack of infrastructure even at the out skirts of city. I remember when realty companies had started building houses in Mira road, Bahayander in Mumbai etc there were no takers due to lack of electricity and water. As soon as that was fixed, there was a sudden surge in inhabitants and today is one of the most populous suburbs.

    With energy will come roads, railways, water treatment plants and everything that is needed to build houses and cities. Energy is at the heart of everything and to build mega cities which is very important for India and China, it needs uninterrupted energy managed efficiently.

    When we speak about other downstream companies such as white goods that will only flourish if and when people have houses to fit these goods.

    1. There are some fallacies in Punit Mittal’s observations. For one, people choose their houses on various factors like proximity to work place, availability of educational facilities for their children and lifestyle options. Easy availability of power may fix only the lifestyle option.

      As for the housing boom in Bhayander and Mira Road outside Mumbai, it was the improvement in the Western Railway’s suburban network which caused it. The entire network from Dahisar to Virar was connected by just two sets of tracks. The quadrupling of the tracks allowed more trains to run and thus reduce crush space to some extent.

  35. Sir, as you said one should focus on B2B busineeses that will benefit from capex cycle. Big beneficary here could be Premier explosives both on account of capex in coal and secondly on defence front. They have got strong moat in terms of entry barriers and some licenses they just got right from ammunitions to rocket missiles, warheads, mines, bombs which can take substantial time for any new player. I am looking it for 10 days and have started to gain confidence. If you could provide your valuable input here that will be fantastic.

  36. It’s awesome to read some of the free-wheeling thoughts of some of the commentators who are willing to think about the consequences of India’s electricity problem getting solved instead of focusing on why it would never get solved. (Watch this video:

    I think it’s terribly important to think about WHAT will happen IF it happens, instead of assuming that it will never happen. Probabilities can be set aside while thinking about consequences. Remember Bayes’ theorem that you were taught in school? 🙂

    Typically, however, the human mind is not designed to think likes Bayes. Instead, it thinks along the following lines: “Oh, it’s never gonna happen, so why even think about it?”

    That kind of thinking is flawed.

    In my own view, based on a lot of reading and much reflection, the probability of India getting electricity for all has never been higher than now. It’s time one thought about it’s consequences— both as citizens, and as investors.

  37. Prof,

    Aggressive bidding brings the cost of solar to rupees 5.25 kWh in AP

    Cost of coal ranges from anywhere between rupees 1.5 kWh to rupees 5.5 kWh depending on the plant and if it is fired with free captive coal or expensive imported coal.

    what happens if Solar falls to rupees 4 per kWh in next 3 years?
    Would coal itself be not under threat?


    The results of India’s latest solar auction are in, and it is bad news for developers of Australian coal projects – solar PV is cheaper for Indian users than the electricity price needed to pay for imports of coal from Australia.

    A tender for 500MW of solar capacity in the sunny, south-eastern state of Andhra Pradesh, resulted in First Solar submitting the cheapest bids in an auction that was oversubscribed by more than double – 63 bids, totalling 1291MW in proposed solar developments.

    First Solar submitted bids of just over 8 cents US per kilowatt-hour – $0.086/kW/h for 40MW and $US0.087/kWh for another 40MW. In local currency terms the bids came in at INR5.25/kWh and INR5.35. That is significant, because it is below the price required to make coal imports economically viable.

  38. Professor: thanks so much for sharing this. A very remarkable thought starter, spent all of saturday evening brainstorming about this.

    I have a limited understanding of industrials, so I am probably not the right person to comment on the upstream portions:

    Level 1: Supply chain management, cold storage units. Agriculture producers will also benefit as goods can be transported wider and with less spoilage. However, ability to keep the share of benefits is a question.

    Level 2: Organised grocery retailers, who lose significant amounts to spoilage due to lack of a good supply chain. Esp. given a low margin, high turns business => effect could be significant. And given it’s a B2C industry, it’s likely they keep some if not all of the benefit of operating efficiency.

    Level 1: Companies producing household electronic goods (eg. Symphony, water heaters etc). Should be able to keep a fair amount of the economic rent.

    Level 2: If capital costs for coolers increase and for ACs fall, Symphony may no longer have a significant running cost advantage vs ACs. Given the latter is much better for cooling and requires no effort of filling water, Symphony may actually face headwinds in some markets. (I am not personally sure how this affects the industrial cooling market, that’s to be explored)

    Level 1: Increased production of coal likely to drive up utilisation of trucks, given our rail system is generally inadequate to handle the increased load.

    Level 2: Finance companies focused on CV lending likely to see good growth: STFC, Cholamandalam Finance. Banks lending to power producers and OEMs will see stress released as borrowers finally get some operating leverage. +ve for IDBI, IDFC, Axis, ICICI et al

    Thoughts welcome.

    1. On the B2C front, a possible L3 could be the massive increase in TAM for some of the FMCG companies. Ice cream, milk VAP and even pouch milk companies will benefit significantly as many of these consumers can consider purchasing these products. This is similar to how Coke rural sales jumped up when non-power requiring refrigeration was provided by the company

  39. Any equipment or machine what would require continuous or consistent power to be useful. A whole lot of kitchen equipment, cooling devices , mosquito repellent, fans, lights, TV.

  40. Also anything that would require to take electricity to village, electrical wires, transformers, electrical poles. First investment opportunity would be here then in electrical consumer goods space. After that any sort of industry can grow out of villages depending on geographical location. Who knows SEZ would start shifting from big cities.

  41. A contrarian view here.. Power has been receiving a lot of focus in the past few years because of the demand-supply gap that has been mentioned in the original article as well. So, even in the best case, when capex is spent to bridge this gap, it does not really imply that households and/or industry will have access to cheaper and more reliable power. It may just mean that the gap will not increase.. In the worst case, sorting out the regulatory mess maybe a prolonged journey.. In any case, to expect fridges/ACs etc to sell more (beyond the direct impact of higher GDP and population) sounds unrealistic to me. Some of the equipment manufacturers and engineering companies are likely to benefit by better execution and focus — but some of that is already factored in the valuations..

    One may also take a completely contrasting view — the demand-supply gap, in spite of the best efforts actually increases.. Also, the entry of private players in this space brings some semblance of market economics to power tariff.. So, some of the incumbent (that do not depend on coal) may simply get the benefit of higher tariffs — NHPC, SJVN etc..

  42. his is solar going to disrupt the coal plans?
    there are some who say that like india jumped landlines and directly into mobile.

    same could happen for coal.. though coal may not be replaceable directly.
    10 years down the line solar may be much more dominant than what it is now.

  43. some points in favour of solar

    1. anybody can do it. from roof top solar needing less than 1 lakhs to 100 or 1000 mw solar .field is wide open from panwala and chai wala to reliance and infosys.

    2. solar is very rapidly scalable. no need for many tough environment clearances.
    incremental capacities can be added on top of present one without much fuss.

    3. govt subsidy will give it a big push.

    4. india has lot of sun light in most parts.

    5. cheap power will reach every corner and if battery storage becomes cheaper and larger as is being tried by tesla.. we will have a mega boom due to abundant power in every nook and corner.

    long term (10 year) bets on direct coal producers or equipment providers may not work out.
    germany being a case in point in which power generating utilities are facing tough times.

    i hope our govt can give sufficient push to start solar voltaic cells manufacturing in a big way and not miss out like india did in mobile phone manufacturing.

  44. hello sir,

    i am fan :-).

    just one request, your blogsite is not mobile device friendly. it opens like a regular web page opens on a desktop/laptop and one has to enlarge the page to view it in larger fonts and constantly reposition it to read the article..

    can you do the needful to change thismay be some configuration in the wordpress account will do the trick.. for comparison you can try by opening your blogsite v/s on a mobile device..

    thanks in advance,

  45. Availability of energy will bring well demonstrated changes, as it happened in developed world. It is not same as cheap and powerful semiconductors or airplanes becoming reality.

    Energy, Connectivity and Government( Regulation etc) ( leaving skill out) are the main pillar of the economy. If one of this (energy) get boost, I can not imagine any sector which will be left behind or will not produce spectacular results compared to current performance.

    Need is to identify 1) existing (listed) companies with reasonable predictability, which will come out as winner. 2) new product/businesses which will come up because of changed scenario, keep watching the space to find the one creating moat.

    Capex Cycle > B2B > Traditional players > first leg of value generation though cyclic

    Business consumer > Increased productivity > Competitiveness in global market > Higher profit > Higher employment > Second unlocking of value

    Employed Citizen + Power availability > Demand of WhiteGoods, Food/ processed food, aspirational products > ThirdA unlocking of value

    HNI + Power availability > Air Conditioned home, hybrid vehicle, mechanized services > new service providers / existing service provider upgrading, luxury products > ThirdB unlocking of value

  46. There are no takers for all the generation capacity that is in place. There is demand but they don’t have the money to pay for the power due to the health of the discoms (state distribution companies),” a senior government official told ET, adding that discoms across all states had incurred accumulated losses of Rs 2.51 lakh crore in 2012-13.
    In 2014-15, 22,566 MW of capacity was commissioned, which officials and experts said were stuck in the pipeline for years till they were put on the ..

    Read more at:

  47. Igarashi Motors – Manufacturer of small precision highly energy efficient DC motors. In recent years they are gaining scale, with increasing OPM. Motors are critical components in many final products, cars, AC, automated equipment, cctv, drones etc. Motor quality cannot be compromised since the over product will have a catastrophic impact. Very few high quality precision motor manufacturers in India, Igarashi is one of them.

    With focus on Make in India, Automation, this could be a popular bet, Also possible case of a moat being created

  48. We should be looking at companies which faciltate the entire mining process. There are various stages of mining (surface, sub surface etc)
    An old Crisil report attached for reference

    1. It starts from Removal of Overburden (an area where companies like NCC operate)
    2. Blasting and Mining
    3. Then there are all the heavy movers which have to faciliate the movement of products.

    A key point to note is that Govt orders will only be given to companies with good financials. Typically all Govt Orders have criteria of profitability over past 3 years etc.

  49. Sir, if energy is cheap and abundant initial impact will be where it is conspicuous by absence, rural India. Electrification of indian villages 1 lac to be done balance 5 lacs far from sufficiency will lead to major shifts in following two areas apart from many others-

    Lightening/ Cooking solution- Way and extent to which they are lightening up today, which is by kerosene. Market size of home lightening will expand and take away some burden from 30k crore kerosene subsidy. Currently 75% of cooking is done in rural through firewood/kerosene changed scenario will spur electrical options- Induction cooker etc.

    Irrigation in agriculture- Use of Electricity pumps in rural will increase manifold as it happened in Gujrat once power was available for irrigation across. Productivity enhancement in crops will spur the rural economy. With irrigation entire crop input bundle- seed, agro chemical etc will see increased penetration. Constrained choice of crop today will itself shift to high value fruits and vegetables expediting expansion of cold chain driven by need and power availability. Profitability of farms will transform scale and quality of rural credit impacting lenders with deep understanding and presence in hinterland.

    The virtuous loop can be extended much further but in short, companies with strong sourcing/distribution channels and presence in rural with product portfolio suiting its needs will be in a sweet spot.

  50. I was going through the white paper of Indian Railway, out of total expense of 1.3 lac crore,,, 31% is expended on fuel. of which 1/3rd i.e 9.7% goes in electricity expense = Rs. 13000 crores approx. average unit cost is Rs.6.4/- Now if incase there is even few percentage reduction in per unit cost, the operating leverage would kick in and with future increase in passengers and freight haulage , the profit side pressure would get reduced.

    The main point I want to say is that, passenger segment is under losses with around close to Rs.100/- of expense on Rs.50/- of revenue and the same is getting compensated via freight overcharging. Could the savings from electrification results in reduction of overcharging on goods and hence, making Goods transported via railway much cheaper. Which would indirectly results into hurting local road transportation sector. I know the topic was who will get benefited by cheaper cost, but isn’t is possible that there are sectors which could get affected by cheaper fuel/Electricity cost, specially Road transport??

  51. Hello sir,

    1. I think Indian Railways i.e. IR would need to lay down tracks for coal evacuation, so lot of steel would be required and hence SAIL will benefit as IR buys steel from SAIL only.

    2. Lot of Wagon/rakes would be needed to evacuate coal so Titagarh Wagon/Texamco would get benefited.

    3. To help digging and removing material from the site, a lot of cranes, heavy equipment vehicles, excavators would be needed. So i assume BEML and crane companies would get the advantage. Since Sanghvi Movers isn’t focused on this segment so it wont benefit but a lot of small crane companies will be benefited.

    4. Lot of dumpers would be needed so those companies would be benefited like ALL etc

    will add more if anything comes to mind.

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