PWGR’s Q3FY23 standalone PAT grew 11% YoY; capex/ capitalisation was Rs12.3/11.9bn respectively. The 14% YoY growth in Other income was on account of higher interest / dividends from subsidiaries (TBCB projects) — and to that extent — quality of earnings has improved. The 64 YoY increase in interest costs is on account of FX losses, higher interest rates, etc., which are pass-through costs. Profit growth is despite CERC not approving Rs1.3bn employee costs (prior years), which have been adjusted towards regulatory deferral account balances-Income/(Expenses). The Telecom and Consulting businesses’ Ebit is up 24%/37% YoY, but their share in total Ebit is only 3%. Consolidated PAT is up 10% YoY.
PWGR CMD, during the Q3FY23 earnings webinar, stated: 1) Growth visibility in Transmission projects is improving. As such, the sector needs investment of Rs2.4trn to evacuate RE power; opportunity from new thermal projects will be additional. 2) Award activity (TBCB) is likely to gather momentum from Q4FY23. As such, healthy Rs130bn pipeline exists. 3) Competition in TBCB projects is intense and likely to weigh high on returns. 4) Higher interest rates and new proposed structure (buyback of asset at a later date vs outright sale) is posing a challenge for asset recycling into INVIT. 5) FY23/24 capex/ capitalisation is likely to be Rs88/100bn and Rs100/100bn respectively. 6) Diversification initiatives are about to start (smart metering, solar projects, etc). 7) The Board will continue to maintain 55-60% payout policy.
IIFL Securities forecast PWGR to register ~5% p.a. PAT growth through FY23-25, led by Rs100bn p.a. capitalisation and unchanged base ROE (reset due in FY25). Valuations are at premium to other PSUs, and will remain so, given the prudency in capital allocation. Improvement in growth outlook for the sector (acceleration in RE capacity / award of thermal projects) will be viewed favourably for the re-rating hereon.
Analysts at IIFL Securities maintain buy with target price of Rs 250.
