Monopoly situation of company unchallengeable Power Grid :: ICICI Securities, PDF link

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Monopoly situation of company unchallengeable
Power Grid Corporation (PGCIL) is the only listed player in the regulated
transmission business in India with 50% share in the segment. PGCIL’s
transmission infrastructure comprises 111,741 ckm of lines, 186 substations
and 218,134 MVA of transformer capacity. The company’s transmission line
length, substation numbers and transformer capacity have grown at a
CAGR of 8.3%, 8.3% and 15.4%, respectively, over FY03-14. Further, the
interregional transfer capacity has grown from 5,050 MW in 2001-02 to
33,950 MW in March 2014. It operates on a regulatory business model with
fixed RoE (15.5% + incentives) while its tariff is based on CERC regulation.
PGCIL has been consistently operating at availability (PAF) of ~100%.
Strong base business, enhanced capex plan to drive future growth
The company has planned | 1.1 lakh crore capex over the Twelfth Plan,
which is 100% higher than its Eleventh Plan capex of | 55,000 crore. PGCIL
earns 15.5% RoE on its capitalised asset and is largely a beneficiary of
increased capitalisation. It has added | 46,904 crore of assets over FY12-14.
In YTD15, the company had incurred | 12,272 crore capex (FY15E target -
|22,450 crore) and capitalised assets worth | 13,200 crore. With the
capitalisation pace surpassing the capex pace over YTDFY15 we have
revised our capitalisation target for FY15E from ~| 18,538 crore to | 20,810
crore. Given the strong capitalisation trend over FY12-15E, we believe
PGCIL will be able to deliver revenue CAGR of 14% over FY14-16E.
Revise estimates upward; maintain BUY
We believe PGCIL commands the best growth profile (earnings CAGR of
~19% over FY14-16E) coupled with relatively least risky business model in
the domestic utility universe. The company’s capitalisation pace has
surpassed that of its capex pace for the first time in past many years in
YTDFY15. This not only lowers the need for dilution but reduces the risk of
the same in the near future. Accordingly, we have revised our capitalisation
target for FY15E from ~|18,538 crore earlier to | 20,810 crore. Likewise, we
have raised our estimates for FY16E marginally by 0.5%. Accordingly, we
have revised our target price upward to | 166 as we now assign a higher
P/BV multiple of 2.0x FY16E vs. 1.8x earlier. We maintain BUY rating


LINK
http://content.icicidirect.com/mailimages/IDirect_PowerGrid_Q2FY15.pdf