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Firing on all cylinders; remains our top pick
Robust earnings outlook, highly
execution-focused management
merit a premium valuation
Action: Firing on all cylinders; reiterate Buy
We are more upbeat on PWGR's earnings outlook post our recent meeting
with its charged-up top management. Robust growth visibility (FY12-14F
EPS CAGR at 20%, FY12-17F EPS CAGR at 16%) in the context of fuelrisk-
plagued IPPs, reasonable multiples (FY14F P/B at 1.7x, P/E at 11.3x)
and lacklustre relative YTD price performance add to our bullish
investment case; PWGR remains our top pick in the sector.
Catalyst: Potential earnings surprise driven largely by capitalization
We raise our FY12F-14F capitalization forecast by 24% (to INR108bn,
INR120bn and INR131bn for FY12F/13F/14F, respectively), and keep
capitalization rates at 30% beyond FY14F; yet we believe capitalization
can surprise positively.
Equity dilution overhang – probable, but not imminent
Flexibility in phasing the funding split in capex, debt covenants permitting
gearing to go up to 3:1 (implying gearing approaching the 2.33x normative
funding split for its transmission projects not being a trigger to raise fresh
equity), and the possibility of the FY15-19 regulatory regime (to be set by
the regulator in FY14) permitting higher normative gearing and/or RoIbased
returns (vs. RoE currently) may not necessitate the need to raise
equity.
Valuation: RI-model-based TP set at INR135, prefer PWGR over NTPC
FY14F implied target multiples at 2.2x P/B and 14.4x P/E are within their
long-term averages. We maintain PWGR should trade at a premium to
NTPC (no 'specific' fuel risk and superior earnings prospects) Our TP for
the two stocks peg PWGR at a 10% premium to NTPC on FY14F P/B.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Firing on all cylinders; remains our top pick
Robust earnings outlook, highly
execution-focused management
merit a premium valuation
Action: Firing on all cylinders; reiterate Buy
We are more upbeat on PWGR's earnings outlook post our recent meeting
with its charged-up top management. Robust growth visibility (FY12-14F
EPS CAGR at 20%, FY12-17F EPS CAGR at 16%) in the context of fuelrisk-
plagued IPPs, reasonable multiples (FY14F P/B at 1.7x, P/E at 11.3x)
and lacklustre relative YTD price performance add to our bullish
investment case; PWGR remains our top pick in the sector.
Catalyst: Potential earnings surprise driven largely by capitalization
We raise our FY12F-14F capitalization forecast by 24% (to INR108bn,
INR120bn and INR131bn for FY12F/13F/14F, respectively), and keep
capitalization rates at 30% beyond FY14F; yet we believe capitalization
can surprise positively.
Equity dilution overhang – probable, but not imminent
Flexibility in phasing the funding split in capex, debt covenants permitting
gearing to go up to 3:1 (implying gearing approaching the 2.33x normative
funding split for its transmission projects not being a trigger to raise fresh
equity), and the possibility of the FY15-19 regulatory regime (to be set by
the regulator in FY14) permitting higher normative gearing and/or RoIbased
returns (vs. RoE currently) may not necessitate the need to raise
equity.
Valuation: RI-model-based TP set at INR135, prefer PWGR over NTPC
FY14F implied target multiples at 2.2x P/B and 14.4x P/E are within their
long-term averages. We maintain PWGR should trade at a premium to
NTPC (no 'specific' fuel risk and superior earnings prospects) Our TP for
the two stocks peg PWGR at a 10% premium to NTPC on FY14F P/B.
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