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PGCIL (On the fast track, ADD):
Power Grid Corporation (PGCIL), unlike other utilities in India, has made timely and substantial investments in its projects, and this is beginning to pay off. We estimate its annual capitalisation rate at Rs90bn through FY11-13ii, as against Rs45bn through FY08-10. Earnings are set to register CAGR of 16% through FY10-13ii. Given PGCIL’s operational efficiency and a revenue model that is insulated from underlying power prices, core RoE is likely to remain stable at ~17.5%. Earnings growth could be faster than our estimate if PGCIL succeeds in leasing out its towers (0.1m in all) to telecom players. At 1.7x FY12ii BV, valuations are reasonable, in our view. We upgrade the stock to ADD.
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