Maintain BUY on Power Grid Corporation of India (PGCIL) - Well poised to seize upcoming opportunities - HDFC Securities

Krishnan ASV, Institutional Research Analyst, HDFC Securities and Mr. Deepak Shinde, Institutional Research Analyst, HDFC Securities

PGCIL's asset capitalisation in Q4FY21 increased by 21.5% YoY to INR88.9bn, while Capex declined 30.8% YoY to INR33.4bn. For FY21 as well, capitalisation increased 17.7% YoY to INR215bn while Capex declined 26% YoY to INR113bn. EBITDA, in Q4FY21, increased 8.4% YoY to INR87.5bn while PAT increased by 10.5% YoY to INR35.2bn, led by improved operating performances, higher other income, and lower interest expenses. PGCIL has recently participated and won projects with a strike rate of above 50%, which highlights the strong competitive edge it enjoys over its peers. The Board has also announced one bonus share for every three shares held. Further, with robust operating cash flow of ~INR310bn p.a, lower capex guidance of below INR100bn for FY22E, and comfortable net D/E of below 2.0x, PGCIL is well poised to benefit from the upcoming investment opportunity in the transmission space. We maintain our BUY rating and revise our FY23 P/BV TP upwards to INR271/share (+16% from CMP, core business -1.6x P/BV, RoE - 17.4%, CoE - 11.5% and earnings growth rate 3.0%).

Healthy earnings in Q4FY21: PGCIL reported revenue of INR99.4bn (+2.5% YoY), led by 1.9%/1.4%/3.6% YoY growth in its transmission/consulting/ telecom segments. EBITDA, however, grew 8.4% YoY to INR87.5bn and margin improved 480bps to 88% on account of lower-than-anticpated other expenses of INR6.0bn (-52% YoY). Other income increased 8.2% YoY to INR7.6bn on higher surcharge income and dividend from its subsidiaries. Interest expenses were down 24.1% YoY at INR19.8bn due to debt repayment, while depreciation was up 5.6% YoY at INR30.3bn. Overall tax expenses declined 43.2% YoY to INR6.3bn, while PAT rose 10.5% YoY to INR35.2bn.

Capitalisation to remain healthy in FY22: In Q4FY21, capitalisation stood at INR88.9bn, up 21.5% YoY, while Capex stood at INR33.4bn, down 30.8% YoY. For FY21, capitalisation and Capex stood at INR214.7bn and INR112.8bn, respectively. PGCIL has total projects worth INR410bn in hand as of Q4FY21, of which CWIP and TBCB stood at INR170bn and INR180bn respectively. We expect these projects to be capitalised over the next 2.5 years. On the new project opportunity, roughly around ~INR103bn of projects are likely to be bid in the next two quarters. Considering the scale of renewable capacity addition planned over the next 3-4 years, management expects a total transmission project opportunity worth INR 280-300bn to be tendered in the next two years. We expect capitalisation of INR173bn in FY22E and~INR200bn for FY23E.

Maintain BUY: We maintain BUY and revise our FY23 P/BV TP to INR271 from INR257 (valuation - core business -1.6x P/BV, RoE - 17.4%, CoE - 11.5% and earnings growth rate 3.0%), factoring in strong cash flow, robust transmission opportunity in renewable space, and healthy dividend yield.

Shares of POWER GRID CORPORATION OF INDIA LTD. was last trading in BSE at Rs.234.95 as compared to the previous close of Rs. 233. The total number of shares traded during the day was 358020 in over 7495 trades.

The stock hit an intraday high of Rs. 235.6 and intraday low of 228.7. The net turnover during the day was Rs. 82958086.

Source : Equity Bulls

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