Maintain 'BUY' on Power Grid Corporation - Geojit BNP Paribas

- Q2FY13 sales of Rs.3086 crores came in higher than estimates, on higher revenues from short-term open access (included in transmission income), consultancy and telecom. Recurring EBITDA of Rs.2670 crores was also above forecasts on lower costs and higher sales.

- PAT grew close to 58% and came in higher than estimates on higher net other income and a lower tax rate.

- Against an aggressive FY13 target of Rs.20000 crores, Power Grid completed transmission projects of only Rs.6770 crores till now in H1FY13.

- A target of Rs.13230 crores for H2FY12 looks ambitious; therefore, project execution target set by the company for FY13 are not expected to be met.

- Our DCF-based target price of INR135 is based on projecting free cash flows for the next 15 years and assuming a terminal growth rate of 3% after that. We assume a WACC of 9.3%.

- BUY rating is retained on the company, on account of its strong growth prospects and lower-risk profile, with a Target Price of Rs.135.

- Power Grid's stock has underperformed the Sensex by around 12% (Current Price at Rs.117) over the last three months on concerns about the government potentially divesting a part of its stake through a follow-on public offering.

- Key risks to Target Price: Higher capex, Execution delays and equity dilution plans.

Source : Equity Bulls

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