A power-generation-equipment manufacturer that commands 40 per cent return on capital is a rarity. That is Alstom India's average ROCE in the last ten years.

Power-generation-equipment manufacturers like Alstom have, in the past couple of years, been hit by the double whammy of investment slowdown in the power sector and the attractive option to buy equipment from Korean and Chinese manufacturers - many of whom even provide financing for the equipment sold. This influx of foreign sellers has been the bane for power-equipment manufacturers in the country for some time now. Even the big daddy BHEL has suffered on this account. A change in the government's focus to make in India brightens the prospects of increased local buying.

Companies hoping for a change in fortunes following the Make-in-India campaign may have to wait a little longer. According to Alstom's management, there is yet to be any significant pick-up in investment in the sector, with banks still reluctant to finance power projects. All the noise about the government's Make-in-India campaign is currently still rhetoric, with some PSUs still sourcing their equipment from the Chinese.

Alstom, in the meantime, remains susceptible to user-industry fortunes. Slow execution led to an 18 per cent decline in the top line in FY15, which saw PAT decline by 23 per cent. The only silver lining offering hope to Alstom is growth in order intake, which jumped 36 per cent in FY15. The company boasts of an order book of ₹8,128.8 crore as at the end of the year.

For signs of improvement in the power sector, look at orders that Power Grid Corporation bids out. Players like Alstom rely on Power Grid, which incidentally is Alstom's largest client. It derives 35 per cent of its revenues from Power Grid alone.

Even if the power generation sector takes its time to turn around, Alstom is likely to remain ahead of competition on the back of its leadership position in the sector and the technological advantage it enjoys. Alstom has demonstrated its ability to maintain high returns on capital over the long term. That is a big plus for a company operating in a sector that has key players bleeding cash. Even though Alstom is up 75 per cent in the last one year, the stock trades at a three-year PEG ratio of 0.92. Buy.