The Powergrid stock has underperformed Sensex by 5% YTD in CY13, and we continue to reiterate a non-consensus ?hold? with a target price of R122/share where 91% of consensus has positive rating with R135/share of target price.
Here are a few concerns. Since new projects are being awarded only on competitive bidding: Powergrid has neither got the market share nor returns in two wins of 11 projects ordered till date. Slowdown in generation sector finally seems to be gripping transmission sector ? the effect of above two is visible in a sharp drop in the number of investment approvals by theboard. We see this trend continuing given drought in ordering for generation and stringent competition in transmission, which risks both BV growth and ROE for Powergrid over long-term.
We see risk of derating despite good near-term earnings growth. At this juncture, NTPC seems better prepared with 37GW of new regulated return projects over 10 years, and is much reasonably priced at 1.3x FY14E P/B (v/s 1.7x for Powergrid). We prefer NTPC as a ?buy? with R178/share target price.
Powergrid?s new investment approvals are down sharply to R2,500 crore/qtr v/s R6,500 crore/qtr historically over 2008-12 (which led capex boom in 2011-14e). Alarmingly, for last threequarters, the run rate is at R1,350 crore, as company seems to have run out of new projects beyond the 12th Plan.