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Who could and can benefit from the Nuke Deal

CollageWhether India’s victory at the NSG will keep the markets in a buoyant mood for any length of time still remains to be seen. But the deal will spell clear business opportunity for several engineering and infrastructure companies, over the medium term.

The granting of a waiver by the Nuclear Suppliers Group (NSG) for international trade of fissile materials with India opens the door for finalisation of the Indo-US civilian nuclear deal. The deal would however, have to be ratified by the US Congress before any transactions can begin.

The clearance by the NSG was crucial for India to source foreign nuclear fuel and re-process the same within India. Strapped for nuclear raw material, Nuclear Power Corporation of India (NPCIL), the public sector company that spearheads India’s nuclear power programme, has seen its plants running on a plant load factor (PLF) as low as 50 per cent in recent times. A green flag to import of nuclear material may help pep up these load factors and also provide a huge boost for the country to set up more nuclear reactors to meet the country’s power deficit.
Plethora of opportunities
The Indo-U.S deal, once in place, would also provide a fresh array of business opportunities for a number of companies in India. Apart from sourcing of raw materials such as uranium from foreign countries, setting up of nuclear power plants would broadly involve supply of key equipments such as the nuclear reactor, boiler, turbine generator (BTG) and other components such as pumps, valves, pipes and tubes. Providing the electrical, mechanical and other integration work, also known as Balance of Plant (BOP) is another key component of a power generation plant. Civil structuring, which takes up as much as 30 per cent of the project cost also requires specialised skills given the safety requirements.
International competition
In the equipment category, while foreign players such as Areva or GE would be the key providers of nuclear reactors, companies such as BHEL and L&T (which is in talks with foreign players for equipment manufacturing) could be major beneficiaries from BTG order flows. Here again, the likes of Mitsubishi Heavy Industries, Areva, GE and Toshiba’s arm could be global competitors in the BTG segment.
Areas such as forging or supply of other equipments may however leave more room for purely Indian players. Players such as Kirloskar Brothers have already received a good portion of the orders from NPCIL for supply of pumps. L&T has also been in talks with NPCIL for a joint venture for forgings, given the shortage in this segment even on an international level.
The civil and BOP works could also provide enhanced opportunities for Indian companies given their prior qualification. In the civil structuring space, Indian players such as Hindustan Construction, L&T and Gammon India have proven execution skills for specialised civil works.
It, however, needs to be kept in mind that the opportunity arising from the deal would not convert into near term revenues for any of the players, given the long lead time required for the manufacture of equipments and construction.