Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Power Grid Corporation of India
Defensive in natural monopoly sector
[ EXTRACT]
Key beneficiary of growth in the transmission sector
We think Power Grid will be a key beneficiary of growth in the transmission
sector; it has over 50% market share which we expect to increase. We believe
Power Grid has significant advantages: 1) the low-risk nature of its business with
ROE of 15.5% plus incentives based on transmission network availability totalling
17-18%; and 2) as the central transmission utility, it has been assigned the role of
co-ordinator in the sector.
Capex trend has been strong in the current Five-Year Plan
Power Grid has a capex target of Rs550bn in the 11th Five Year Plan (FY08-
FY12). To achieve that, the company will have to incur Rs177bn of capex in
FY12. We believe that even in the worst-case scenario, 90-95% of the target can be
achieved. We think this is a strong positive, as the company’s business model is
strongly linked to the capex incurred and the commissioning of its projects.
Strong catalysts ahead
We believe there are strong share price catalysts over the next 12 months: 1) FY12
is the last year of 11th Five-Year Plan and ordering activity is likely to remain
strong towards the end of the financial year (Q4 FY12); 2) strong capitalisation of
Capital Works in Progress; 3) higher capex as Power Grid has a target of Rs550bn
by March 2012; and 4) we believe valuations are attractive.
Valuation: Buy rating and price target of Rs135.00
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a 9.6% WACC
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Power Grid Corporation of India
Defensive in natural monopoly sector
[ EXTRACT]
Key beneficiary of growth in the transmission sector
We think Power Grid will be a key beneficiary of growth in the transmission
sector; it has over 50% market share which we expect to increase. We believe
Power Grid has significant advantages: 1) the low-risk nature of its business with
ROE of 15.5% plus incentives based on transmission network availability totalling
17-18%; and 2) as the central transmission utility, it has been assigned the role of
co-ordinator in the sector.
Capex trend has been strong in the current Five-Year Plan
Power Grid has a capex target of Rs550bn in the 11th Five Year Plan (FY08-
FY12). To achieve that, the company will have to incur Rs177bn of capex in
FY12. We believe that even in the worst-case scenario, 90-95% of the target can be
achieved. We think this is a strong positive, as the company’s business model is
strongly linked to the capex incurred and the commissioning of its projects.
Strong catalysts ahead
We believe there are strong share price catalysts over the next 12 months: 1) FY12
is the last year of 11th Five-Year Plan and ordering activity is likely to remain
strong towards the end of the financial year (Q4 FY12); 2) strong capitalisation of
Capital Works in Progress; 3) higher capex as Power Grid has a target of Rs550bn
by March 2012; and 4) we believe valuations are attractive.
Valuation: Buy rating and price target of Rs135.00
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a 9.6% WACC
No comments:
Post a Comment