Power Grid - Adjusted Jun-q growth decent, but FY12 capex and capitalization likely to be back-ended ::JPMorgan

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Power Grid Corporation of India Overweight
PGRD.BO, PWGR IN
Adjusted Jun-q growth decent, but FY12 capex and
capitalization likely to be back-ended


 Adjusted Jun-q growth numbers healthy: PGCIL reported revenue of
Rs22B (+10% YoY), ~6-6.5% below consensus and our estimate. EBITDA
margin was down ~30bp YoY to 83.8% and the company reported flat PAT
of ~Rs7.05B (~2.2% below consensus). While prima facie headline
numbers appear disappointing, we note that 1Q FY11 results were inflated
by a prior period RoE component (~Rs1.3B PBT contribution), among other
adjustments. On a like-to-like basis, Jun-q revenue and PAT grew ~20%
YoY (see breakdown of adjustments inside this report).
 Consultancy segment de-grows: PGCIL has reported two consecutive
quarters of de-growth in consultancy fees (down 26-27% in Jun-q and 4Q
FY11). According to management, APDRP/RGGVY projects under
execution are at the completion stage. The company has guided to flat
growth in the segment for FY12, although it expects to maintain a PBT
margin of ~55-60%. A lower growth estimate for the consultancy segment
reduces our FY12-13 EPS estimates by ~1.1% and our PT by Rs2.
 FY12 capex and capitalization likely to be back-ended: According to
management, PGCIL incurred capex of Rs19B in Jun-q and our inference
from data points shared is that capitalization (or addition to gross block)
was ~Rs16B during the quarter. Management maintained its target of
Rs170B capex in FY12 (JPMe of Rs143B remains unchanged) and Rs95-
100B capitalization (JPMe of Rs98B, also unchanged). Based on CEA data
for PGCIL FY12 targets, we infer that ~44% of transmission line
commissioning and ~67% of transformation capacity addition will happen
in 4Q FY12.
PGCIL has outperformed the Sensex by ~21% YTD: Our revised DCFbased
Mar-12 PT of Rs114 implies limited absolute upside from the current
share price. However owing to its superior execution track record, we
believe it offers a safe+stable growth haven relative to IPPs that face
significantly higher uncertainty around land, fuel, environmental clearances
and merchant prices. A key risk: Weak capitalization is sustained in FY12
and beyond, keeping assets idle (and thus not eligible to earn RoE).