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EARNINGS REVIEW
Power Grid (PGRD.BO)
Sell Equity Research
In line results: Benefits of higher capitalization already in the price
What surprised us
Power Grid (PGRD) reported 3QFY12 adjusted PAT of Rs7.8bn vs. GSe and
Bloomberg consensus of Rs7.5bn. Reported PAT of Rs8.1bn was adjusted with
foreign exchange loss recoverable of Rs0.3bn. The capitalization in 3QFY12 was
about Rs22bn, taking 9MFY12 run rate to Rs63bn vs. Rs69bn for 9MFY11. While
revenue growth (10% YoY) from the telecom segment was in line with our
estimate, consultancy revenue declined by 5% YoY.
PGRD confirmed these at the analyst meeting: 1) capitalization achieved up until
Feb 9 was about Rs82bn and it expects capitalization up until Feb end to be
about Rs110bn vs. our estimate of Rs90bn for FY12E; 2) mgmt is confident of
meeting its capex guidance of about Rs180bn for FY12 vs. Rs100bn for 9MFY12;
3) PGRD plans to incur about Rs1000bn capex for the 12th plan (already awarded
contracts worth about Rs500bn) and Rs200bn over the next 2 years; 4) Internal
accruals should be sufficient to meet capex over the next two years. PGRD will
wait for further visibility on FY14-19 regulations before deciding on the mode of
equity funding from FY14E onwards. They plan to use higher debt, i.e. up to
80% vs. current 70%, in the event CERC allows returns on capital employed.
What to do with the stock
We keep our Sell on PGRD with 12-month DCF based TP of Rs92 (earlier 86),
implying 16% downside. We raised our TP and FY12-14 EPS by 7%-8% as we
have reflected higher quantum of capitalization of Rs11bn/10bn/10bn for FY12-
14E vs our earlier estimate of Rs10bn. We, however, believe that benefits of
higher capitalization are already in the price. The stock is trading at premium to
its Neutral-rated regulated peers – NTPC.BO (Rs181.30)/NHPC.BO (Rs21.55) – on
both P/B and P/E. Higher than expected growth in other businesses is key risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Power Grid (PGRD.BO)
Sell Equity Research
In line results: Benefits of higher capitalization already in the price
What surprised us
Power Grid (PGRD) reported 3QFY12 adjusted PAT of Rs7.8bn vs. GSe and
Bloomberg consensus of Rs7.5bn. Reported PAT of Rs8.1bn was adjusted with
foreign exchange loss recoverable of Rs0.3bn. The capitalization in 3QFY12 was
about Rs22bn, taking 9MFY12 run rate to Rs63bn vs. Rs69bn for 9MFY11. While
revenue growth (10% YoY) from the telecom segment was in line with our
estimate, consultancy revenue declined by 5% YoY.
PGRD confirmed these at the analyst meeting: 1) capitalization achieved up until
Feb 9 was about Rs82bn and it expects capitalization up until Feb end to be
about Rs110bn vs. our estimate of Rs90bn for FY12E; 2) mgmt is confident of
meeting its capex guidance of about Rs180bn for FY12 vs. Rs100bn for 9MFY12;
3) PGRD plans to incur about Rs1000bn capex for the 12th plan (already awarded
contracts worth about Rs500bn) and Rs200bn over the next 2 years; 4) Internal
accruals should be sufficient to meet capex over the next two years. PGRD will
wait for further visibility on FY14-19 regulations before deciding on the mode of
equity funding from FY14E onwards. They plan to use higher debt, i.e. up to
80% vs. current 70%, in the event CERC allows returns on capital employed.
What to do with the stock
We keep our Sell on PGRD with 12-month DCF based TP of Rs92 (earlier 86),
implying 16% downside. We raised our TP and FY12-14 EPS by 7%-8% as we
have reflected higher quantum of capitalization of Rs11bn/10bn/10bn for FY12-
14E vs our earlier estimate of Rs10bn. We, however, believe that benefits of
higher capitalization are already in the price. The stock is trading at premium to
its Neutral-rated regulated peers – NTPC.BO (Rs181.30)/NHPC.BO (Rs21.55) – on
both P/B and P/E. Higher than expected growth in other businesses is key risk.
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