Power Grid: Downside limited [FPO Note

India Infoline News Service | Mumbai |

Power Grid: Downside limited – Subscribe

Issue opens: 03-Dec-13, Issue closes: 06-Dec-13
Price band:  Rs85-90*, Target Price:  Rs112, Upside at upper end:  24.5%
*Retail and employee to get 5% discount at issue price

Power Grid (PWG), is India's Central Transmission Utility (CTU) and carries about 50% of India's generated electricity. The company has embarked upon an aggressive expansion plan over the 12th Five Year Plan (FY13-17) to augment India’s power Transmission and distribution infrastructure. Power Grid over the last five years has managed to beat its guidance and is geared up to achieve its target set for 12th Five Year Plan. Power Grid has recently increased its capex plans during the XIIth Five Year Plan (FY13-17) to ~Rs1,096bn, higher than its earlier guidance of Rs1,000bn. Power Grid has identified 27 transmission projects worth Rs483bn to be implemented in the near term. To maintain its debt:equity ratio at 70:30, the company would issue fresh shares (13% dilution) to fund its capex over the next 2-3 years. The Follow on Public Offer (FPO) also includes divesting of 4% of Government’s stake in the company.


The company is in a regulated business which assures minimum 15.5% ROE; guarantees reasonable profitability along with steady returns. Power Grid has also consistently maintained average system availability above 99.9% leading to higher income under the incentive based tariff structure. Power Grid also provides chance to participate in power sector reforms as the company is the indirect beneficiary.


The company has diversified into broadband and telecom services and is also into consultancy for T&D projects. We believe EPS CAGR of 12% (post dilution) over FY13-16E with an average RoE of 16% makes it one of the safe and attractive bet in troubled utility sector. The recent decline in the stock due to the overhang of the FPO has made the stock quite attractive at 1.2x FY15 P/BV. We value the company at 1.5x FY15 P/B and recommend a BUY rating with a target price of Rs112, providing an upside of 24.5% from the upper band of the issue. A 5% discount to retail investors makes the FPO even more attractive and provides a good opportunity to buy the stock.


Financial summary
Y/e 31 Mar (Rs m)
FY13
FY14E
FY15E
FY16E
Revenues
127,579
155,938
181,800
209,452
yoy growth (%)
25.5
22.2
16.6
15.2
Operating profit
109,364
136,600
160,529
186,054
OPM (%)
85.7
87.6
88.3
88.8
Reported PAT
42,345
48,459
58,352
67,401
yoy growth (%)
30.1
14.4
20.4
15.5
 
 
 
 
 
EPS (Rs)
9.1
9.3
11.2
12.9
P/E (x)
9.8
9.7
8.1
7.0
Price/Book (x)
1.6
1.3
1.2
1.1
EV/EBITDA (x)
9.7
8.7
8.2
7.6
Debt/Equity (x)
2.5
2.2
2.3
2.3
RoE (%)
17.0
15.8
15.7
16.3
RoCE (%)
9.1
9.4
9.3
9.4
Source: Company, India Infoline Research


BSE 199.40 [0.60] ([0.30]%)
NSE 198.85 [1.25] ([0.62]%)

***Note: This is a NSE Chart

 

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