Maintain Buy on Power Grid - Motilal Oswal

POWERGRID: FPO price attractive (37% upside), Fixed asset capitalization and higher incentives to drive 18% earnings CAGR till FY13; Maintain Buy

The Government has announced the price band for Follow-on Public Offer (FPO) of Powergrid at Rs85-90/sh for issue of 841.8m shares.

Current issue represents 20% of the pre-issue paid up capital of Powergrid and thus, the stake of GoI would come down from 86.4% to 66.4% (dilution of 10%).

We expect PGCIL to achieve Eleventh Plan targeted capex of Rs550b, despite meaningful delays in generation capacity additions.

Fixed Asset Capitalisation would increase meaningfully, given the expected bunching up of generation capacity additions towards the end of 11th plan period.

Till September 2010, PGCIL has incurred capex of Rs235b, representing ~56% of the budgeted capex of Rs550b for 11th plan.

We expect PGCIL to report net profit of Rs27b in FY11 (up 17% YoY) and Rs33.3b in FY12 (up 24% YoY). We have valued PGCIL based on average of DCF and SOTP valuation to arrive at a target price of Rs123/sh. Stock trades at a PER of 17x FY11E and 14x FY12E and P/BV of 2.1x FY11E and 1.9x FY12E. We have already modelled the current dilution in our estimates. Maintain Buy.

Source : Equity Bulls

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