Increasing capitalization to drive earnings: We expect capitalization to
increase to Rs167bn in FY17E from Rs71bn in FY11 and regulated equity base
to increase by 2.6x to Rs435bn in FY17, resulting in earnings CAGR of 16%
over FY12-17E. The CWIP in balance sheet has also increased 2x to Rs266bn in
FY11 from Rs132bn in FY09, indicating higher capitalization over the next few
years. The management highlighted that it is highly focused on execution and
ambitiously looking at reducing CWIP in FY13 despite huge capex plans of
Rs200bn in FY13. This effectively means that the management is indicating
capitalization numbers of ~Rs200-210bn for FY13. PWGR reported
capitalization of Rs40.72bn for Q1FY13 . It has further capitalized assets worth
Rs10bn in July till date taking the total capitalization to Rs50bn. The
management had earlier indicated capitalization of ~Rs200bn for FY13 and
sounded confident and on track to achieve the same.
Trying to address investor concerns: PWGR, in its analyst meet, highlighted
most common concerns raised by the investors and put forward its point of
view on the same: (1) Dilution (it highlighted that PWGR can avoid dilution by
tweaking D:E ratio and working with lower than prescribed D:E ratio of 70:30
for 1-2 years) (2) Risk of lower RoE by regulator for next tariff period (it
highlighted that historically RoE for tariff period has been decided based on
prevailing SBI PLR in order period and current high PLR does not suggest a
case for lowering RoE in next tariff period) (3) Delay by IPP (it highlighted that
it has checks and balance at various stages to ensure synchronized
commissioning of line with generation and regulatory support in case of
unintentional delay beyond PWG control. (4) plans after XII plan capex (it tried
to give a flavour of likely capex in XIII and size and areas of opportunities in XIII
plan)
Relative a better bet: We believe PWGR remains the safest play in the Power
Utilities space which has been facing multiple issue of coal shortage,
deteriorating SEB finances etc. PWGR is immune to fuel risk and faces
relatively moderate land acquisition issues as compared to IPPs. We expect
the company to deliver 16% EPS growth over FY12-17E with core RoEs of
~17.6% over the same period.
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