Power Grid Corporation of India (PGRD.NS): F1Q14: Good Results; FPO an Overhang :Morgan Stanley Research
Quick Comment: Power Grid reported F1Q14 revenue of Rs35.6bn (up 23% YoY), EBITDA of Rs30.6bn (up 24% YoY) and adjusted PAT of Rs10.4bn (up 14% YoY). While EBITDA was 5% better than our estimate, PAT was in-line due to a higher than estimated interest and depreciation expense. The board approved a fresh issuance of 694 mn equity shares (15% dilution on existing base) through an FPO which was the key reason for the ~12% fall in the stock today. The rationale for equity-raising is to bring the debt:equity ratio within comfortable limits and build enough firepower to take on additional projects.
What's new: Some key points from F1Q14:
·The company has incurred capex of Rs65bn by July end. This compares with Rs30bn of capex in F1Q13. The company targets the addition of 12,000 GW-ckm of lines, 17 substations and 4,200 MW of inter-regional capacity in F2014.
·Commissioning was strong at Rs 29.5bn in F1Q14 and Rs39.5 bn by July end. However, this was lower on a YoY basis (Rs 41 bn in F1Q13) which could have been due to the early onset of monsoons.
·The company has raised its capex target for the 12th Plan by 10% to Rs 1.1 trillion. The increase in estimate reflects new tariff based bidding projects, new projects assigned by the government, the planned Green Energy Corridors, intra-state projects and the transnational Interconnections.
Impact on our views: Power Grid remains our top pick in the sector given its regulated business model, high market share and visible earnings growth. While the FPO will remain an overhang on the stock, it is important to note that we expect the price to rise from here. We would use opportunities from price drops to build long-term positions in the stock.
What's new: Some key points from F1Q14:
·The company has incurred capex of Rs65bn by July end. This compares with Rs30bn of capex in F1Q13. The company targets the addition of 12,000 GW-ckm of lines, 17 substations and 4,200 MW of inter-regional capacity in F2014.
·Commissioning was strong at Rs 29.5bn in F1Q14 and Rs39.5 bn by July end. However, this was lower on a YoY basis (Rs 41 bn in F1Q13) which could have been due to the early onset of monsoons.
·The company has raised its capex target for the 12th Plan by 10% to Rs 1.1 trillion. The increase in estimate reflects new tariff based bidding projects, new projects assigned by the government, the planned Green Energy Corridors, intra-state projects and the transnational Interconnections.
Impact on our views: Power Grid remains our top pick in the sector given its regulated business model, high market share and visible earnings growth. While the FPO will remain an overhang on the stock, it is important to note that we expect the price to rise from here. We would use opportunities from price drops to build long-term positions in the stock.
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