Power Grid Corporation of India Limited - Steering into high growth trajectory - Antique

Power Grid Corporation (PGCIL) commissioned assets worth INR172bn in FY13 (higher than our est of INR155bn and street estimates of INR145bn. This has been mainly contributed by higher asset commissioning in the month of Feb and March'13. In 4QFY13, the company commissioned assets of INR74bn (flat YoY) and incurred a capex of INR126.4bn, up 44% YoY. We have maintained our FY14e/FY15e asset commissioning at INR180bn/INR200bn. We expect company to post a 24% CAGR growth in earnings over FY12-15e. Reiterate BUY!

Results highlights

PAT grew 7.5% YoY due to asset commissioning of INR172bn between Jan'12-Dec'13

PGCIL reported revenues of INR33bn in 4QFY13 (+9% YoY) and INR127.6bn (+25.5% YoY) for FY13. PAT for 3Q and FY13 stood at INR11.1bn (in line with our estimate of INR11.5bn) and INR42.3bn, respectively. The increase in earnings during the quarter has been primarily on account of: a) 7.9% YoY increase in transmission income - INR31.9bn, led by commissioning of INR 78.5bn worth of assets in 4QFY13; b) 4.2% YoY increase in telecom revenue to INR607m.

Capex and commissioning on track; expect better commissioning-to-capex in FY14/FY15

After the 9mFY13 commissioning of INR93.5bn, we had lowered our est to INR155bn for FY13 from INR170bn. However, PGCIL reported higher than expected commissioning at INR172bn (vs. INR141bn FY12). Hence, we have maintained our FY14/FY15 commissioning est at INR 180bn/200bn. The company has incurred a capex of INR200bn in FY13 vs INR172bn in FY12, up 16.6% YoY. Capex for the quarter was down 11.7% YoY at INR74bn. The management mentioned that the capex of INR200bn incurred in FY13 was funded by a debt/equity of 75/25 but was confident that towards the completion of the projects it would put in the additional equity to maintain D/E of 70/30. The commissioning to capex ratio has also improved in FY13 to 86% vs 82% in FY12 and we expect it to improve to 90%/100% in FY14/FY15.

XII Plan targets in place

PGCIL plans to incur a capex of INR 1trn over the period of FY13-17 of which INR200bn has been spent. The management is confident to meet the targets as the investment approval for INR905bn has already been received and ordering of INR840bn has been done. It is also confident of meeting its equity requirements through internal cash generation from operations, excess depreciation over debt repayment and reduced debtors. Hence, it lowers the risk of dilution as we believe the company can lower the equity contribution to 28% if need be.

Valuation and outlook, reiterate BUY

At CMP of INR113/share, the stock is trading at P/E of 9x and P/B of 1.4x on FY15E. We reiterate a BUY recommendation with a target of INR142/share (@ Target P/BV of 1.8x FY15e).

Source : Equity Bulls

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