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PAT up 34% with commissioning of projects worth INR 17.4 bn
Power Grid Corporation of India’s (PGCIL) Q3FY11 adjusted PAT grew 34% Y-o-Y
on the back of commissioning of projects worth INR 17.4 bn. Earnings were
driven mainly by the transmission segment, where PBT grew 69% Y-o-Y, while
consulting and RLDC segments posted lower earnings.
Capex target of INR 119 bn for FY11 and INR 177 bn for FY12
PGCIL intends to incur a capex of INR 119 bn in FY11 (~INR 80 bn done so far)
and INR 177 bn in FY12. The company also targets commissioning of projects
worth INR 90 bn in FY11 (of which, INR 68 bn has been achieved as of
December 2010) and ~INR 100 bn in FY12.
On course to achieve XI Plan target; XII Plan target at ~INR 1.0-1.2 tn
PGCIL is expected to complete capex of ~INR 300 bn by FY11. Based on the
schedule of further spend of ~INR 170 bn next year, the company seems to be
on course to achieve 80-90% of its XI Plan target of INR 550 bn. The
management has guided for XII Plan capex of INR 1.0-1.2 tn, comprising
dedicated transmission corridors valued at ~INR 580 bn, transmission links for
four UMPPs of ~INR 200 bn, with the rest being central utility linked capex.
Outlook and valuations: Strong growth; upgrade to ‘BUY’
PGCIL has been consistent in its capex plans, which has enabled it to report
robust earnings growth of 19% during FY08-10, which we expect to further grow
at ~17% over FY11-13. Participation of private sector in transmission projects is
yet to scale up. Hence, PGCIL has been entrusted with a higher capex target of
~INR 1 tn for the XII Plan projects. With regulated RoEs (including efficiency
gains) already at ~17%, we see limited downside to earnings even under a
competitive regime. However, due to the paucity of surplus cash, PGCIL would
be constrained to fund the capex at traditional debt:equity ratio of 70:30,
without further equity dilution. We are introducing FY13E and also increase our
Ke (in line with our house view). At CMP of INR 96, the stock is trading at 1.9x
FY12E and 1.7x FY13E book value, which we believe is attractive considering
robust earnings & capex outlook and limited risks. We upgrade the stock to
‘BUY’ from ‘HOLD’ and also revise the relative rating to ‘Sector
Outperformer’.
Company Description
PGCIL commenced operations in 1992 by consolidating transmission assets of NTPC,
NHPC, NEEPC, NPCIL, Tehri Hydro Development Corporation, and Neyveli Lignite. In
1994, the assets and communication systems of regional load dispatch centre (RLDC)
were also transferred to the company with an objective to enhance grid management.
Due to the central transmission utility status, PGCIL is mandated to undertake and
operate inter-state transmission systems efficiently, provide for open access, and
undertake various functions of RLDC. Recently, under the Rajiv Gandhi Grameen
Vidyutikaran Yojana, PGCIL is mandated to implement the electrification of rural
households in association with the Rural Electrification Corporation, SEBs, and the
respective state governments.
Investment Theme
Growth visibility: The company plans to invest INR 330 bn in the Eleventh Five Year
Plan for its various transmission projects. Of these close to 60% are for strengthening
the overall grid capacity and the balance 40% is generation linked. The 12th Plan target
for capex is touted to be INR 1-1.2 tn with a similar mix. Hence, there is a certain
visibility on the capex program and in turn earnings growth. The company has been
consistently delivering 20-25% profit growth every quarter driven by its capex.
Reversal in the current trend of capex and telecom earnings: If the company is
able to scale up internal accruals through superior earnings from telecom which would in
turn invested in power business then the overall earnings growth could be significant.
Key Risks
Telecom a drag: The company’s strategy of leveraging its transmission towers also as
telecom towers has not fructified so far. In addition, it seems to be a drag on earnings.
Funding issues: PGCIL is constrained by its limited retained earnings in undertaking
significant capex programme under the 70:30 debt/equity norm. While the company
could raise the threshold to 80% debt and 20% equity to meet its XI Plan target but
earnings will continue to be on the actual equity deployed.
Slow pace of capex – dependant on generation capacity growth: Power Grid
capex is dependant heavily (40-50% of total capex) on the capacity addition of its
associated generation projects. Any delay in these generation assets will cascade to a
delay in Power grids project execution slowing its pace of growth. Escalation in project
costs, delay in commissioning of generation projects, and long gestation periods could
impact profitability, if delays are not compensated through tariffs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PAT up 34% with commissioning of projects worth INR 17.4 bn
Power Grid Corporation of India’s (PGCIL) Q3FY11 adjusted PAT grew 34% Y-o-Y
on the back of commissioning of projects worth INR 17.4 bn. Earnings were
driven mainly by the transmission segment, where PBT grew 69% Y-o-Y, while
consulting and RLDC segments posted lower earnings.
Capex target of INR 119 bn for FY11 and INR 177 bn for FY12
PGCIL intends to incur a capex of INR 119 bn in FY11 (~INR 80 bn done so far)
and INR 177 bn in FY12. The company also targets commissioning of projects
worth INR 90 bn in FY11 (of which, INR 68 bn has been achieved as of
December 2010) and ~INR 100 bn in FY12.
On course to achieve XI Plan target; XII Plan target at ~INR 1.0-1.2 tn
PGCIL is expected to complete capex of ~INR 300 bn by FY11. Based on the
schedule of further spend of ~INR 170 bn next year, the company seems to be
on course to achieve 80-90% of its XI Plan target of INR 550 bn. The
management has guided for XII Plan capex of INR 1.0-1.2 tn, comprising
dedicated transmission corridors valued at ~INR 580 bn, transmission links for
four UMPPs of ~INR 200 bn, with the rest being central utility linked capex.
Outlook and valuations: Strong growth; upgrade to ‘BUY’
PGCIL has been consistent in its capex plans, which has enabled it to report
robust earnings growth of 19% during FY08-10, which we expect to further grow
at ~17% over FY11-13. Participation of private sector in transmission projects is
yet to scale up. Hence, PGCIL has been entrusted with a higher capex target of
~INR 1 tn for the XII Plan projects. With regulated RoEs (including efficiency
gains) already at ~17%, we see limited downside to earnings even under a
competitive regime. However, due to the paucity of surplus cash, PGCIL would
be constrained to fund the capex at traditional debt:equity ratio of 70:30,
without further equity dilution. We are introducing FY13E and also increase our
Ke (in line with our house view). At CMP of INR 96, the stock is trading at 1.9x
FY12E and 1.7x FY13E book value, which we believe is attractive considering
robust earnings & capex outlook and limited risks. We upgrade the stock to
‘BUY’ from ‘HOLD’ and also revise the relative rating to ‘Sector
Outperformer’.
Company Description
PGCIL commenced operations in 1992 by consolidating transmission assets of NTPC,
NHPC, NEEPC, NPCIL, Tehri Hydro Development Corporation, and Neyveli Lignite. In
1994, the assets and communication systems of regional load dispatch centre (RLDC)
were also transferred to the company with an objective to enhance grid management.
Due to the central transmission utility status, PGCIL is mandated to undertake and
operate inter-state transmission systems efficiently, provide for open access, and
undertake various functions of RLDC. Recently, under the Rajiv Gandhi Grameen
Vidyutikaran Yojana, PGCIL is mandated to implement the electrification of rural
households in association with the Rural Electrification Corporation, SEBs, and the
respective state governments.
Investment Theme
Growth visibility: The company plans to invest INR 330 bn in the Eleventh Five Year
Plan for its various transmission projects. Of these close to 60% are for strengthening
the overall grid capacity and the balance 40% is generation linked. The 12th Plan target
for capex is touted to be INR 1-1.2 tn with a similar mix. Hence, there is a certain
visibility on the capex program and in turn earnings growth. The company has been
consistently delivering 20-25% profit growth every quarter driven by its capex.
Reversal in the current trend of capex and telecom earnings: If the company is
able to scale up internal accruals through superior earnings from telecom which would in
turn invested in power business then the overall earnings growth could be significant.
Key Risks
Telecom a drag: The company’s strategy of leveraging its transmission towers also as
telecom towers has not fructified so far. In addition, it seems to be a drag on earnings.
Funding issues: PGCIL is constrained by its limited retained earnings in undertaking
significant capex programme under the 70:30 debt/equity norm. While the company
could raise the threshold to 80% debt and 20% equity to meet its XI Plan target but
earnings will continue to be on the actual equity deployed.
Slow pace of capex – dependant on generation capacity growth: Power Grid
capex is dependant heavily (40-50% of total capex) on the capacity addition of its
associated generation projects. Any delay in these generation assets will cascade to a
delay in Power grids project execution slowing its pace of growth. Escalation in project
costs, delay in commissioning of generation projects, and long gestation periods could
impact profitability, if delays are not compensated through tariffs.
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