Power Grid Corporation of India Limited - Execution to pick up in the coming quarters - Antique

We estimate that Power Grid Corp. of India (PGCIL) will capitalise assets above INR35bn in 3QFY13, which is better than market estimates due to high commissioning in Dec'12. We estimate PGCIL earnings to grow at a CAGR of 24.6% over FY12-15e backed by commissioning of assets worth INR170bn in FY13e, INR180bn in FY14e, and INR200bn in FY15e. Considering regulated RoE of 20-21%, the stock is trading attractively at 1.9x FY14e regulated equity. Reiterate BUY!

Key highlights

Commissioning in 3QFY13 expected above INR35bn; above street estimates

While PGCIL missed commissioning guidance of INR90bn in FY11 by 17% at INR73bn, it surpassed street estimates of INR100bn in FY12 at INR141bn. We believe the company is on track to commission assets worth INR170bn in FY13e, of which INR67.7bn has already been commissioned in 1HFY13 (40% of FY13e). We expect PGCIL to commission above INR35bn in 3QFY13, up 57% YoY (INR22.3bn in 3QFY12) on the back of higher capitalisation in the month of Dec'12. Oct and Nov commissioning was lower due to delayed monsoons and labour shortage. We expect commissioning of INR103.7bn in 9mFY13 (60% of FY13e target), up 63% YoY. Hence, capitalisation target of INR170bn for FY13e seems achievable as it will require commissioning of INR67.3bn in 4QFY13 (INR78.2 commissioned in 4QFY12).

Low risk to capex guidance and dilution

PGCIL has incurred a capex of INR41bn in 2QFY13 and INR71bn in 1HFY13. We expect the company to incur a capex of INR200bn each in FY13e and FY14e. As per the CEA recent list prepared, most of the planned capacity associated with IPP evacuation facility is expected to come on stream in 12th FY plan, and hence, delay in transmission system associated with IPPs is low. PGCIL will assign 30% equity to projects getting commissioned in the near term and lower initial equity to projects under execution, which allays dilution risk for investors.

24% CAGR in regulated equity base to improve RoEs

The average regulated equity for XIth FYP grew by 12.3% over FY08-12 and we expect it to grow at a CAGR of 24.6% over FY12-15e. As CWIP declines as a proportion of gross block, RoEs are expected to rise in FY13e and FY14e to 14.9% and 15.8%, respectively. The return on regulated equity has been in the range of 18.0-20.5% over the last five years as against the normative 15.5% due to incentive gains on account of better system availability, short-term open access income, and contribution from consultancy and telecom segments.

Valuation and outlook

We maintain our EPS estimates for FY13e/FY14e at INR8.6/INR10.5 as against the consensus estimates of INR8.2/INR9.6, up 5%/7%. We reiterate our BUY recommendation with a target price of INR140/share (@ Target FY14e P/BV of 2.1x).

Source : Equity Bulls

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