Power Grid Corporation of India Ltd. share price target

30 May 2018 Power Grids (PWGR) 4QFY18 standalone (S/A) reported PAT grew 4.6% YoY to INR20b (est. Factors such as wage hike, CSR expense of INR830m and a swing in adjustments pursuant to the final tariff orders of INR660m dragged earnings growth. Capitalization stood at INR80.9b in 4QFY18. For FY18, PAT grew 9.6% YoY to INR82.3b. This was lower than growth in regulated equity (estimated at ~17% YoY) due to (a) INR1.2b lower surcharge income, (b) ~INR2.3b in pay revision hit and (c) a swing in adjustments pursuant to the final tariff orders of INR2b. Adj. for these, PAT growth is reflective of growth in regulated equity.

We analyzed the tariff-based competitive bidding (TBCB) projects from the annual reports of Power Grid's (PWGR) subsidiaries. In our view, PWGR will generate more than 14% equity IRR (debt/equity ratio of 80/20) on its TBCB projects. The equity IRR on the three projects that are fully commissioned is ~24-38%. PWGR enjoys a competitive edge due to its (a) low cost of borrowed funds, (b) dominant position with suppliers and (c) vast geographical spread, which should continue driving healthy returns. Transmission order inflows are expected to be low over the next few years, but the long-term growth potential is huge. Experience from China and the US suggests that the transmission infrastructure continues increasing in tandem with generation (demand) growth. Renewable generation capacities, flexibility and redundancy requirements also aid transmission investment, as seen in the US/UK over the past few years. India, with just one third of the world's per capita electricity consumption, has huge growth potential. Separation of carriage and content, as proposed in the draft Electricity Act, will provide another growth stream to PWGR, in our view.

We have Buy rating on Power Grid Corporation of India Ltd with a revised Target price of Rs220 from previous Rs230. Revenue grew by 11.8% YoY led by 14% YoY growth in transmission revenue and 20.7% YoY growth in telecom revenue while consultancy revenue de grew by 12 % YoY....

For the quarter ended Dec 17, net sales of Power Grid stood at Rs 7506.95 crore up by 13% YoY. Net revenue from Transmission business, which constitutes around 96% of total revenue, was up 14% to Rs 7322.69 crore. Net revenue from consultancy service business was down by 12% to Rs 143.36 crore. Telecom income was up by 21% YoY to Rs 174.27 crore. OPM was lower by 140 bps to 88.4% resulting OP being up by 12% to Rs 6636.41 crore. Other income was up by 76% to Rs 278.09 crore. Interest costs were up by 19% to Rs 1955.45 crore. Depreciation was up by 18% to Rs 2318.6 crore resulting PBT of Rs 2640.45 crore, up by 6%...

Q3FY18 core transmission PAT grew 17% YoY to Rs 19 bn in line with our estimate. Core RoE improved 30 bps QoQ to 14% but declined 80 bps YoY due to under-recovery on lower absorption of O&M; cost, forming ~2% of regulated equity.

Power Grid reported Q2FY18 results that were below our estimates on all counts. Revenue growth, though in double digits, was below estimates coupled with higher depreciation charges also leading to lower growth on the profitability front. Revenues were at | 7353.1 crore, up 17.6% YoY (I-direct estimate of | 7606.8 crore). Transmission segment revenues for Q2FY18 grew 18.8% YoY, coming in at | 7063.4 crore. On the other hand, consultancy & telecom segment revenues declined 10.8%, 3.1% YoY at | 115.9 crore, | 173.8 crore, respectively...

commenced operations in 1992 by consolidating transmission assets of NTPC, NHPC, NEEPC, NPCIL, Tehri Hydro Development Corporation, and Neyveli Lignite. PGCIL is playing a vital role in the growth of Indian power sector by developing a robust Integrated National Grid and associating in the flagship program of Govt. of India to provide power for all. The company has 142,990 ckm of transmission lines, 226 sub stations, 311,185...

Capitalization stood at INR59.9b (INR195b YTD, +22% YoY). Capex stood at INR87b (INR179b YTD, +11% YoY). Telecom revenue rose ~21% YoY to INR1.7b, while EBIT increased ~3% YoY to INR790m. Consultancy revenue declined ~12% YoY to INR1.4b, while EBIT fell ~40% YoY to INR796m. Implied transmission PAT increased ~22% YoY on strong capitalization momentum.

Q2FY18 was in line with revenue at Rs 72.5 bn (up 16% YoY) and PAT at Rs 21 bn (up 10% YoY). The growth was largely in tandem with the pick-up in capitalization at Rs 100 bn in Q2 (vs. estimate at Rs 70 bn).

Power Grid Corporation's Q2FY18 standalone results for the quarter were largely in-line with consensus estimates. For the quarter ended Sep 17, net sales of Power Grid stood at Rs 7252.84 crore up by 16% YoY. Net revenue from Transmission business, which constitutes around 96% of total revenue, was up 17% to Rs 6984 crore. Net revenue from consultancy service business was down by 27% to Rs 113 crore. Telecom income was up by 20% YoY to Rs 156 crore. OPM was higher by 90 bps to 90.4% resulting OP being up by 17% to Rs 6555.97 crore. Other income was up by 6% to Rs 239.68 crore. Interest costs were up by 18% to Rs 1867.28 crore....