Maintain 'buy' on Power Grid - TP Rs.142 - Geojit BNP Paribas Financial Services

- Buy rating on Power Grid is maintained with a target price of Rs.142

- Excluding prior period sales of Rs.100 crore, the company missed sales estimates of the market, EBITDA was virtually in line but PAT missed analysts' estimates on higher interest costs.

- Capitalization of Rs.3281 crore was 33% below the market estimates of Rs.4877 crore owing to delays in project execution due to bad weather.

- While execution delayed in the 3QFY13 due to bad weather, the management has stated that it has laid the groundwork to catch up in 4QFY13. Thus, the capitalization estimate of Rs.18000 crore for FY13 by the market is likely to remain intact. However, the company had guided Rs.20000 crore of capitalization in FY13, which seems to be unattainable.

- Maintain buy rating with a target price of Rs.142. The TP is based on free cash flow projections for the next 15 years with certain assumptions.

- Risks to the target price include execution delays and key management risk, as it seems that Power Grid's Chairman is playing a pivotal role in improving execution.

- Main concerns of divestment and dilution remain. The Department of Divestment has included Power Grid in its list of companies in which the government intends to divest its stake.

- Although management said it is trying to convince the government to not divest now as it would restrict the company's ability to raise capital in the future, investors believe the government will divest as it is desperate for cash to fund the fiscal deficit.

- Management's response to fears of potential equity dilution is that Power Grid would dilute only if it slips significantly on execution or if the capex exceeds the current Rs.1,000 billion budgeted for FY13-17.

Source : Equity Bulls

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