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Powergrid 29% Upside ENAM 2011 TOP Pick
RoE expansion through merchant power sales
● PGCIL captures the merchant power opportunity through sale of its spare capacity on a short‐term
open access (ST) basis. It charges on an average ~Rs 0.16/kWh and retains 25% of the revenue and there
are NO RoE caps. With an expected increase in merchant power sales, this would aid PGCIL’s ROE
● Recently, even in case of a delay in generation‐linked transmission project, CERC has allowed PGCIL to
bill transmission charges retrospectively to its customer from the original date of commercial operation.
This was highly positive for PGCIL as it faced a major risk of stranded assets due to delay in generation
linked projects.
● We have valued PGCIL at Rs 125/sh based on P/B of 2x FY12E core invested equity in transmission
assets 17% core RoE and 7% LT growth).
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