Power Grid Corporation - Commissioning likely to improve; upgrade to BUY - Religare

PWGR's Q3 adj. PAT at Rs 11.1bn (+38% YoY) was slightly above expectations due to higher short-term open access (STOA) sales and other income. Capex remains robust with Rs 150bn spent in FY13 YTD, in line with PWGR's full-year target of Rs 200bn. We believe high capex would lead to strong commissioning and hence better PAT growth. We raise FY13-FY15 PAT estimates by 14-16% to reflect increased commissioning and STOA estimates. Rolling over to a revised Mar'14 TP of Rs 135 (from Rs 130), we upgrade the stock to BUY on valuations.

- Capex in line: PWGR incurred capex of Rs 55.4bn (+36% YoY) in Q3FY13, taking the total outlay to Rs 127bn for 9MFY13 (+46% YoY). According to the management, Rs 150bn of capex has been incurred YTD, and the company is well on track to achieving and even surpassing the target of Rs 200bn for FY13.

- Commissioning below estimates: Project commissioning totalled Rs 25.9bn (+16% YoY) during Q3 and Rs 93.5bn for 9MFY13 (+49% YoY). Commissioning was marginally below estimates during the quarter on account of rough weather in some key project locations. PWGR has commissioned some projects related to the Sasan and Mundra UMPPs during the quarter.

- Other income aided by higher surcharge: Other income increased 21% YoY to Rs 1.3bn aided by a higher surcharge of Rs 380mn, which was on account of Rs 5.5bn of debtors pending for more than 60 days. According to the management, Rs 3bn of debtors from the above are under dispute with respect to the Point-of-Connection charges tariff framework.

- Upgrade to BUY: We have raised our PAT estimates by 16%/15%/14% for FY13/FY14/FY15 on account of an increase in commissioning and STOA estimates. Our March'14 TP of Rs 135 implies an exit P/B multiple of ~2x on FY14E. BUY.

Source : Equity Bulls

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