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Power Grid Corporation of India
Solid 1Q12 result
Event
PWGR’s reported 1Q12 NPAT of Rs7.05bn, in line with our forecast and
consensus. After stripping out one-off items in 1Q11, PWGR registered 14%
YoY EPS growth in 1Q12.
PWGR is obviously one of the most defensive stocks in the market, and it
appears that rising bond yields due to high inflation (regulated utilities typically
underperform) are being overshadowed by declining GDP forecasts
(favouring low-beta names). We forecast 12% EPS CAGR over the next three
years (we factor in dilution, should our capex targets be met), while the stock
trades on 16x FY12E NPAT. As such, although the stock is defensive, we see
no material upside from the current price. We retain Neutral.
Impact
Safe as poles and wires – underlying earnings in-line: PWGR’s 1Q12
NPAT of Rs7.05bn was only slightly lower that our Rs7.30bn forecast and
even closer to consensus.
Solid 14% EPS growth on pcp: While the headline NPAT result appeared
flat on the pcp of Rs7.0bn, the 1Q11 result included a number of one-off items
such as a one-off, retrospective tariff adjustment of Rs1.3bn and dividend
income of Rs0.4bn. Stripping these out translates to 25% underlying NPAT
growth in 1Q12. Post the 10% FPO dilution, this equates to 14% YoY EPS
growth.
Capital-intensive: At the end of 1Q12, PWGR had utilised 47% of its
~US$840m FPO proceeds over seven months. We currently forecast PWGR
will need to raise more equity in FY14 to meet our capex forecasts, giving
some constraint to EPS growth. Alternatively, it may draw down more debt in
excess of its 70% regulated gearing – unlikely, in our view.
GDP downgrades overshadow high inflation: The current economic
climate sends conflicting messages. GDP growth expectations are being
lowered by economists (favouring PWGR as a defensive), while rising inflation
is pressuring the RBI to increase interest rates (regulated utilities tend to
underperform). The RBI has clearly indicated on 26 July 2011 that inflation,
more than growth, is the focus, and therefore we’d anticipate high interest
rates to continue for some time (Macquarie: a further +50bpt in FY12).
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs100.00 based on a Sum of Parts methodology.
Catalyst: Near-term market performance (low-beta defensive)
Action and recommendation
Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Power Grid Corporation of India
Solid 1Q12 result
Event
PWGR’s reported 1Q12 NPAT of Rs7.05bn, in line with our forecast and
consensus. After stripping out one-off items in 1Q11, PWGR registered 14%
YoY EPS growth in 1Q12.
PWGR is obviously one of the most defensive stocks in the market, and it
appears that rising bond yields due to high inflation (regulated utilities typically
underperform) are being overshadowed by declining GDP forecasts
(favouring low-beta names). We forecast 12% EPS CAGR over the next three
years (we factor in dilution, should our capex targets be met), while the stock
trades on 16x FY12E NPAT. As such, although the stock is defensive, we see
no material upside from the current price. We retain Neutral.
Impact
Safe as poles and wires – underlying earnings in-line: PWGR’s 1Q12
NPAT of Rs7.05bn was only slightly lower that our Rs7.30bn forecast and
even closer to consensus.
Solid 14% EPS growth on pcp: While the headline NPAT result appeared
flat on the pcp of Rs7.0bn, the 1Q11 result included a number of one-off items
such as a one-off, retrospective tariff adjustment of Rs1.3bn and dividend
income of Rs0.4bn. Stripping these out translates to 25% underlying NPAT
growth in 1Q12. Post the 10% FPO dilution, this equates to 14% YoY EPS
growth.
Capital-intensive: At the end of 1Q12, PWGR had utilised 47% of its
~US$840m FPO proceeds over seven months. We currently forecast PWGR
will need to raise more equity in FY14 to meet our capex forecasts, giving
some constraint to EPS growth. Alternatively, it may draw down more debt in
excess of its 70% regulated gearing – unlikely, in our view.
GDP downgrades overshadow high inflation: The current economic
climate sends conflicting messages. GDP growth expectations are being
lowered by economists (favouring PWGR as a defensive), while rising inflation
is pressuring the RBI to increase interest rates (regulated utilities tend to
underperform). The RBI has clearly indicated on 26 July 2011 that inflation,
more than growth, is the focus, and therefore we’d anticipate high interest
rates to continue for some time (Macquarie: a further +50bpt in FY12).
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs100.00 based on a Sum of Parts methodology.
Catalyst: Near-term market performance (low-beta defensive)
Action and recommendation
Neutral.
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