Power Grid rating – Buy: Performance in Q1FY21 met estimates

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Against these projects standalone CWIP stands at Rs 148 bn and another Rs 66 bn under TBCB.Against these projects standalone CWIP stands at Rs 148 bn and another Rs 66 bn under TBCB.

Power Grid reported PAT of Rs 33 bn (+9% y-o-y) in Q1FY22 on the back of asset capitalisation of Rs 56 bn, and despite moderated surcharge income during the quarter. PWGR has projects of Rs 351 bn in hand against which capex of Rs 216 bn has already been incurred, and offers near-term growth visibility. In addition to near-term opportunities of Rs 108 bn, the company will look to garner the lion’s share from medium-term opportunities in excess of Rs 400 bn. Attractive valuations at 8.5X P/E and 1.5X P/B keep us positive. Maintain Buy with revised FV of Rs 205 (from Rs 195 post-bonus).

Earnings marginally below estimate
Power Grid reported revenues of Rs 107.3 bn (+9% y-o-y, +6% q-o-q), Ebitda of Rs 95 bn (+9% y-o-y, +7% q-o-q) and PAT of Rs 33 bn (+9% y-o-y, -4% q-o-q), in line with our estimates. Lower-than-estimated PAT was on account of (i) lower income from the telecom business; (ii) lower other income on account of a drop in surcharge income to Rs 550 mn in Q1FY22. Exceptional income of Rs 30 bn during the quarter was on account of sale of units of PGInvIT received in lieu of a transfer of 74% ownership of TBCB assets.

Asset capitalisation of Rs 56 bn in Q1FY22, projects in hand of Rs 351 bn
Asset capitalisation (on consolidated basis) for the quarter was at Rs 56 bn (+373% y-o-y) while capex was at Rs 11 bn (-42% y-o-y). We estimate asset capitalisation (consolidated) of Rs 187 bn while capex is likely to remain limited at Rs 86 bn in FY22e. We note that PWGR currently has projects of Rs 351 bn in hand comprising TBCB projects of Rs 168 bn and regulated return projects of Rs 183 bn. Against these projects standalone CWIP stands at Rs 148 bn and another Rs 66 bn under TBCB.

Maintain Buy rating
We remain positive on Power Grid on account of (i) attractive valuations at 8.5X P/E and 1.5X P/B and dividend yield of 5%; (ii) visibility on earnings growth trajectory as the company will capitalise on projects aggregating Rs 446 bn over the next three years that will yield 6% CAGR in earnings up to FY2025E; and (iii) incremental opportunities in intra-state and inter-state transmission. Maintain Buy.

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