FY18 was strong on all fronts; ‘Buy’ retained on high earnings predictability.
India Grid delivered a strong maiden FY18 performance on all fronts: (i) completed acquisition of three ROFO assets ahead of original plan, (ii) distributed DPU (distribution per unit) of Rs 9.56 for 10MFY18 (vs. Rs 9.2 guided), (iii) increased portfolio IRR to 10% (vs. 9.2% earlier) & (iv) on course to acquire first third-party asset to accelerate growth (expected in Q1FY19).
India Grid is a growth plus yield play considering large pipeline of sponsor’s assets that can increase AUM four-fold to Rs 200 bn. For FY19, management expects strong growth trajectory with acquisition of two more assets from its sponsor at an estimated EV of Rs 51 bn.We maintain Buy with a target price of Rs 105.
In-line Q4 performance: Q4 PAT at Rs 691 mn was in line with our estimate, aided by strong operating efficiency of Initial Portfolio Assets (availability at 99.7%) and part revenue (`300 mn) from newly-acquired three ROFO assets. Ebitda margin dipped ~400 bps q-o-q due to one-time M&A expense after acquisition of three ROFO assets in Q4.
Maintain Buy on low-risk profile, high earnings predictability: India Grid is well positioned to capitalise upon strong growth fundamentals of the power transmission sector. Further, acquisition of additional two ROFO assets will be both DPU and IRR accretive. We maintain Buy on high earnings predictability, strong parentage, and average DPU growth of 3-5% p.a.