Power Grid (Q4 FY14)

India Infoline News Service | Mumbai |

Power Grid reported better than expected revenue of Rs39.8bn registering a growth of 18.2% yoy and 8.2% qoq.

CMP Rs122, Target Rs144, Upside 18.0% 
  • Revenue of Rs39.8bn was higher by 18.1% yoy and 8.2% qoq and also higher than our estimate of Rs38.3bn

  • Reported PAT was higher by 7.5% yoy and 7.8% qoq to Rs11.9bn; The outperformance in PAT was curtailed due to an increase in tax rate

  • The company capitalized projects worth Rs68bn in Q4 FY14; lower than our estimate. It also capitalized a project worth Rs18.5bn in early-April

  • Management maintained its guidance in FY15 capex and expects capitalization as a % of capex to increase yoy

  • We maintain our BUY rating on the stock with target price of Rs144

Result table
(Rs mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Revenues 39,863 33,737 18.2 36,846 8.2
Employee exp (2,343) (2,216) 5.7 (2,458) (4.7)
Admin and Other Exp
(3,321) (3,212) 3.4 (2,688) 23.6
EBITDA 34,200 28,310 20.8 31,700 7.9
OPM (%) 85.8 83.9 188 bps 86.0 (24) bps
Dep and amort (10,750) (9,049) 18.8 (9,903) 8.6
Operating profit 23,449 19,261 21.7 21,798 7.6
Other Income 1,974 2,417 (18.4) 1,148 72.0
Finance Cost (8,189) (6,746) 21.4 (7,874) 4.0
PBT 17,234 14,932 15.4 15,072 14.3
Prior Exp (201) 117 - (10) -
Tax (5,107) (3,954) 29.1 (3,995) 27.8
PAT 11,927 11,095 7.5 11,067 7.8
Effe tax rate (%) 29.6 26.5 315 bps 26.5 313 bps
Pre Excp PAT 11,959 10,978 8.9 10,431 14.7
Pre Excp PAT margin (%) 30.0 32.5 (254) bps 28.3 169 bps
EPS (Rs. Annualised) 9.0 9.6 (6.5) 8.8 1.8
Source: Company, India Infoline Research

Transmission revenues above estimate

Power Grid reported better than expected revenue of Rs39.8bn registering a growth of 18.2% yoy and 8.2% qoq. The higher than expected growth in topline was largely due to the higher revenue in its transmission revenue. Transmission revenues were higher due to capitalization of assets in the second half previous quarter. Capitalisation remained lower than estimate at Rs68bn as one of the grids was commissioned in 1st week of April. For FY14, capitalization stood at Rs159bn, which jumped to Rs177bn by the first half of April. Reported PAT was high by 7.5% yoy to Rs11.9bn, inline with our estimate. The outperformance in bottomline was curtailed by a jump in tax rate. Revenues from its transmission segment increased 16% yoy to Rs38bn. Consultancy business revenues jumped 40% yoy to Rs1.7bn. Management portrayed better outlook for Telecom business and the company expects to inch up in the consultancy business with few international projects.

Company capitalized projects worth Rs68bn in Q4 FY14

The capitalization run rate for the quarter was lower than our estimate of Rs78bn. As one of the grids was capitalized in 1st week of April, capitalization for the quarter was lower than estimate. For FY14, capitalization stood at Rs159bn, quite lower than our expectations. We were expecting capitalization of Rs180bn for the year. The capex FY14 stood at Rs223.2bn, marginally higher than expectations. Capex and capitalization momentum was strong in April. The management expects capitalization as a % of capex to increase sharply in FY15 due to the shifting of one project in 1st week of April and CWIP installed quite higher than previous years. CWIP installed jumped from Rs210bn in FY13 to Rs318bn by the end of FY14, indicating that capitalization would be quite higher in FY15. The management has maintained its capex guidance over the next three years.

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. 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 has also consistently maintained average system availability above 99.9% leading to higher income under the incentive based tariff structure. PWG also provides chance to participate in power sector reforms as the company is the indirect beneficiary. We believe capitalization would improve on a yoy basis in FY15 due to the higher share of CWIP at the project site in FY14. Increase in capitalization as a % of total capex and higher system availability would boost revenues. The new regimes focus on infrastructure would led to a jump in projects for the company. We value the company at 1.7x FY16 P/B and maintain our BUY rating with a target price of Rs144.

Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Revenues 127,579 156,754 190,066 218,161
yoy growth (%) 25.5 22.9 21.3 14.8
Operating profit 109,364 132,639 163,758 189,442
OPM (%) 85.7 84.6 86.2 86.8
Reported PAT 42,345 45,476 59,837 68,958
yoy growth (%) 42,345 45,476 59,837 68,958
EPS (Rs) 30.1 7.4  31.6  15.2 
P/E (x) 9.1 8.7 11.4 13.2
Price/Book (x) 13.3 14.0 10.7 9.3
EV/EBITDA (x) 2.2 1.8 1.6 1.5
Debt/Equity (x) 11.1 10.3 9.1 8.4
RoE (%) 2.5 2.2 2.3 2.3
RoCE (%) 17.0 14.8 16.2 16.7
Source: Company, India Infoline Research

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