Power Grid -Increased capitalization to aid earnings, maintain ‘outperform’:: Sunidhi

Power Grid (PGCIL) reported its Q4FY12 numbers which were above our as well as street estimates. Revenue (`31 bn, 40.3% yoy), EBITDA (`26 bn, 44.1% yoy) and PAT (`10.3 bn, 37.4% yoy) all have seen robust growth, mainly driven by substantially higher capitalization for the quarter at `78 bn against `5.2 bn in Q4FY11 and `22.3 bn in Q3FY12. PGCIL surpassed its capitalization target for FY12, which stood at `141 bn against target of `120 bn and our estimate of `102 bn. We believe increased capitalization in FY12 would aid its earnings in FY13E-14E period as most of this capitalization are back-ended, given FY12 was the last year of 11th plan. We have revised our FY13E and FY14E EPS estimates upwards by 9.6% and 7.9% respectively to factor in increased capex and capitalization going forward. We maintain our ‘outperform’ rating on the stock with a revised DCF based target price of `123 (earlier `126/share), giving an upside potential of 16%.

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Earnings beat estimates on higher capitalization
PGCIL reported strong earnings (37.4% yoy/27.5% qoq) for Q4FY12, on the back of increased capitalization resulting in higher transmission income. PGCIL’s capitalization for the quarter stood at `78 bn against `4.9 bn in Q4FY11, almost 16-fold rise. Revenue for the quarter saw a robust growth of 40.3% yoy driven by increased income from the transmission segment, despite flat revenue growth of consultancy and telecom segments. PGCIL also surpassed its FY12 capitalisation target of `120 bn by capitalizing more than `141 bn of assets. In tandem with robust capitalization trend of PGCIL, we have revised our FY13E and FY14E capitalization estimates upwards to `164 bn (from `109 bn) and `132 bn (from `116 bn) respectively. We have also revised our FY13E and FY14E capex estimates to `180 bn/year from our earlier estimates of `120 bn and `144 bn.
FY13E and FY14E EPS estimates revised upwards
In accordance with our revised assumptions for FY13E/FY14E capex and capitalization, we have upgraded our FY13E and FY14E EPS estimates by 9.6% and 7.9% respectively. Management’s focus on reducing its CWIP going forward will augur well for its earnings. Getting success in its endeavour to reduce CWIP and expanding its transmission asset base will also allay investors’ concern of possible equity dilution in FY14E to fund its capex.
Maintain ‘outperform’ with revised target price of `123(earlier `126/share)
At CMP of `106, PGCIL is trading at a P/E and P/BV of 13.1x and 1.9x FY13E estimates. We believe increased capitalization in FY12 would aid its earnings in FY13E-FY14E period as most of this capitalization are back-ended given FY12 was the last year of 11th plan. We have revised our FY13E and FY14E EPS estimates upwards to factor in increased capex and capitalization over FY13E-14E. We maintain our ‘outperform’ rating on the stock with a revised DCF based target price of `123 (earlier `126/share), giving an upside potential of 16%.