Management commentary at the post-FY16 results analyst meeting on the medium-term growth outlook, continuing financial discipline (calibrating capex and capital advances keeping revenue realisation in context) and top-notch project execution provide us enough confidence in reiterating Power Grid as our top pick in the power utilities space.
While Q4FY16 normalised PAT missed our forecast by 7%, and RoRE (return on regulated equity) was 14%, encouragingly, GFA accretion (transmission capacity start-up) at Rs 318 billion was above our forecast and management remains confident that FY17F transmission capacity start-up will be around this level (our forecast is Rs 287 billion).
For FY16, normalised EBITDA was in line and PAT was 2% below our forecast. We continue to expect FY16-18F EPS/EBITDA CAGRs of 20%/18%, with reported RoE rising to 17% in FY18F from 15% in FY16. Maintain buy; at the CMP the stock trades at FY18F 1.4x P/B (BPS of Rs 105) and 8.9x P/E (EPS of Rs 16.9).
Transmission capacity start-up (asset capitalisation): Commercial start-up of transmission capacity (GFA accretion) in Q4FY16 was Rs 50 billion, implying total GFA accretion in FY16 was Rs 318 billion (+46% y-o-y).The Rs 318 billion GFA accretion in FY16 includes an exchange rate variation-linked component of Rs 11-12 billion. Management maintained that FY17F asset capitalisation would be in the vicinity of the FY16 levels.