PGCIL’s FY18 PAT grew 10%, which was impacted by Rs 350 crore higher employee expenses on account of pay revision.
Power Grid Corporation of India’s (PGCIL) Q4FY18 operating performance came 5% below consensus, primarily due to R250 crore foreign exchange rate variation (FERV), though was P&L neutral. Key highlights: 1) FY18 capitalisation at Rs 27,400 crore dipped 12% y-o-y & marginally missed lower end of management’s Rs 28,000 crore guidance; 2) with Rs 94,000 crore projects in hand, management has pegged next three years’ capitalisation at ~Rs 30,000 crore plus on an average (our estimate: Rs 26,000 crore for FY19/20), which we believe is aggressive considering ~Rs 25,000 crore capex.
We believe, regulated equity is still likely to post healthy 13% CAGR over FY18-20. There could be some time correction in the stock due to finalisation of CERC’s 2019-24 norms’ overhang. Maintain ‘BUY’ with revised TP of Rs 240 (Rs 250 earlier) building in higher COE due to high risk-free rate. PGCIL’s FY18 PAT grew 10%, which was impacted by Rs 350 crore higher employee expenses on account of pay revision. While the company has filed a petition with CERC for tariff revision (will be cleared in all likelihood, in our view), it has not booked any provisional tariff in its books (contrary to NTPC’s accounting).
On operational parameters, availability of transmission lines was at 99.8%. Capitalisation of Rs 27,400 crore in FY18 included completion of ~10 long overdue projects worth ~Rs 6,500 crore.
Management estimates FY19 capitalisation/capex ratio at ~1.2x.
While FY19/20E ratio could still be ~1.1x, we believe capex growth beyond FY20 could be challenging as: 1) conventional power generation capacity addition will taper to ~10GW pa over the next few years from 23GW (FY10-16); 2) stability in regional imbalances likely post commissioning of transmission corridors; and 3) renewable capacity addition target (25GW pa) looks aggressive considering past 12 months’ ordering scenario (10- 12GW). However, upside in capex emanates from intra-state & international projects.