Power Grid (Q1 FY14)

India Infoline News Service | Mumbai |

We revise our rating to MP from BUY earlier with 9-month target price of Rs100, to factor in dilution impact

CMP Rs91, Target Rs100, Upside 9.9%

  • Power Grid reported better than expected Revenue of Rs35.5bn registering 23% yoy and 5.3% qoq growth
  • Strong capitalization of ~Rs60bn towards the end of Mar-13 quarter resulted in strong growth of in Q1 FY14
  • Reported PAT was up 19.6% to Rs10.3bn; the qoq decline of 6.2% was on the back of  lower other income reported in this quarter
  • The company capitalized projects worth Rs29.5bn in Q1 FY14; the capitalizing momentum to gear up in coming quarters
  • Management optimistic about the higher capitalization and also increases its target of investment by 10% to Rs1,100bn in XIIth plan
  • The company indicates 15% stake through a follow-on public offer to raise funds to meet the target D/E at 70:30
  • We revise our rating to MP from BUY earlier with 9-month target price of Rs100, to factor in dilution impact
Result table (Standalone)
(Rs mn) Q1 FY14 Q1 FY13 % yoy Q4 FY14 % qoq
Revenues 35,538 28,882 23.0 33,737 5.3
Employee exp (2,318) (2,237) 3.6 (2,216) 4.6
Trans,
Admin and Other Exp
(2,690) (2,000) 34.5 (3,212) (16.2)
EBITDA 30,529 24,646 23.9 28,310 7.8
OPM (%) 85.9 85.3 57 bps 83.9 199 bps
Dep and amort (9,644) (7,565) 27.5 (9,049) 6.6
Operating profit 20,885 17,081 22.3 19,261 8.4
Other Income 803 920 (12.8) 2,417 (66.8)
Finance Cost (7,599) (6,461) 17.6 (6,746) 12.6
PBT 14,090 11,540 22.1 14,932 (5.6)
Prior Exp 60 (4) - 117 -
Tax (3,747) (2,836) 32.1 (3,954) (5.3)
PAT 10,403 8,701 19.6 11,095 (6.2)
Effe tax rate (%) 26.6 24.6 202 bps 26.5 11 bps
Pre Excp PAT 10,343 9,065 14.1 10,978 (5.8)
Pre Excp PAT margin (%) 29.1 31.4 (228) bps 32.5 (344)bps
EPS (Rs. Annualised) 9.0 7.5 19.7 9.6 (6.1)
Source: Company, India Infoline Research

Power grid reported another quarter of sturdy growth; ahead of our expectations
Power Grid reported better than expected Revenue of Rs35.5bn registering 23% yoy and 5.3% qoq growth. As expected Due to the strong capitalization of ~Rs60bn towards the end of Mar-13 quarter resulted in strong growth of in Q1 FY14. Reported PAT was up 19.6% to Rs10.3bn; the qoq decline of 6.2% was led by lower other income reported in this quarter

The company capitalized projects worth Rs29.5bn in Q1 FY14; the capitalizing momentum to gear up in coming quarters
After heavy capitalisation in last quarter, the company capitalized projects worth Rs29.5bn in this quarter. The capitalization was below our estimate but the capitalizing momentum to gear up in coming quarters. Management optimistic about the higher capitalization and also increases its target of investment by 10% to Rs1,100bn in XIIth plan. The company targets for 90% capitalization in each year in XIIth Plan.

Transmission Revenue grew by 22.1% yoy and 6.1% qoq
Revenues from its transmission segment increased 22.1% yoy to Rs33.8bn. While consultancy business revenues declined to Rs945mn from Rs1.2bn in last quarter. Telecom revenues moved up by 34.6% yoy to Rs730mn. Management portrayed better outlook for Telecom business and the company expects to inch up in the consultancy business with few international projects.

The company indicates 15% stake sale through a follow-on public offer to raise funds to meet the target D/E at 70:30 which might get increased with revised investment plan
The company indicated 15% stake through a follow-on public offer to raise funds to meet the target D/E of 70:30. Accordingly, it has anticipated a capex of Rs200bn for FY13, Rs221bn for FY14, Rs224bn for FY15, Rs225 bn for FY16 and Rs225bn in FY17. This FPO will help us meet additional capex requirement, the additional capex will be required for various tariff-based bidding projects that company plans to undertake. Besides, it will be required for undertaking projects assigned by the Government, green energy corridors, intra-state projects and transnational interconnections. The company's debt-equity ratio currently stands at 73:27. The company wants to reduce the debt component and wants to make DE to stand at 70:30.

Outlook & Valuation
Power Grid is a monopoly play in the regulated transmission business in India and its one of the better managed PSUs. The company is in a regulated business which assures minimum 15.5% ROE; guarantees reasonable profitability along with steady returns. PWG plans Rs1,100bn of capex during the XIIth Five Year Plan (FY13-17). For power grid the asset base increases with every tick. But with equity dilution in near future we expect the stock price to remain under pressure. We have not built in dilution in our valuation now as the exact date and time is not known. We revise our rating to MP from BUY earlier with 9-month target price of Rs100, to factor in dilution impact.

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues 1,00,353 1,28,887 1,49,466 1,74,039
yoy growth (%) 19.6 28.4 16.0 16.4
Operating profit 83,824 1,09,051 1,26,656 1,48,947
OPM (%) 83.5 84.6 84.7 85.6
Reported PAT 32,550 43,103 50,211 57,432
yoy growth (%) 20.7 32.4 16.5 14.4





EPS (Rs) 7.0 9.3 10.8 12.4
P/E (x) 12.9 9.8 8.4 7.3
Price/Book (x) 1.8 1.6 1.4 1.3
EV/EBITDA (x) 11.0 9.7 9.2 8.5
Debt/Equity (x) 2.3 2.5 2.6 2.7
RoE (%) 14.5 17.3 18.0 18.3
RoCE (%) 8.9 9.8 9.7 9.6
Source: Company, India Infoline Research

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