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Research
Power Grid - Higher capitalization continues to drive growth - Destimoney
Posted On : 2012-10-12 23:45:59( TIMEZONE : IST )
We had initiated coverage on Power Grid Corporation of India Limited (PGCIL) on January 5,2012 based on its good revenue visibility in India's interregional electric power transmission systems market.
- In Q1FY13, PGCIL reported 31.1% YoY rise in net sales to Rs.28.9 billion led by transmission segment. EBITDA margin improved by 270 bps on a YoY basis to 85.3%.
- During the period, the company capitalized assets worth Rs.41 billion, which was higher than the capex of around Rs.30.1 billion incurred during the year. The company has earmarked Rs.200 billion capex for FY13 of which Rs.37.5 billion was incurred up to July end.
- The higher capitalization was due to commissioning of some major projects during the quarter. Additionally it has received approvals and contracts worth Rs.51.2 billion and Rs.60 billion, respectively, thereby increasing its revenue visibility.
- PGCIL has planned capex to the tune of Rs.1000 billion in the ongoing XII Plan period. The company is targeting asset capitalization of about Rs.175 billion in FY13, of which Rs.41 billion has been already achieved in Q1FY13.
- To achieve the planned capex, significant debt would be required which the company plans to raise through domestic institutions and internal accruals. Management has guided to reduce equity component in capex and raise funds through debt and internal accruals. We remain watchful about management's guidance to lower the CWIP in FY13.
- We expect significant capitalization in the initial years of the XII plan than in the later years and have accordingly adjusted our model. We continue to remain positive about the rapid development of the regional grid network.
- We expect the company to deliver earnings CAGR of 27.5% over FY12-15E. We rate PGCIL as one of the safe plays in the power utilities sector with reasonable growth visibility , hence we reiterate our BUY rating with a revised target price of Rs.136 per share.
