Rs 275-bn projects in hand offer near-term growth visibility; valuations are attractive; ‘Buy’ retained with a TP of Rs 210
Power Grid reported PAT of Rs 33.5 bn (+10% y-o-y) in Q2FY22 on the back of asset capitalisation of Rs 76.6 bn, and despite moderated surcharge income during the quarter. Projects in hand of Rs 275 bn, with capex of Rs 157 bn already having been incurred, offer near-term growth visibility. In addition, PWGR is looking at opportunities of Rs 265 bn from transmission projects, as well as opportunities in metering and distribution infrastructure. Attractive valuations at 8.4X P/E and 1.5X P/B keep us positive. Maintain Buy with revised FV of Rs 210/share (from Rs 205/share).
Earnings marginally lower than estimate due to regulatory adjustments
Power Grid reported revenues of Rs 99.2 bn (+4% y/y, -7% q/q), Ebitda of Rs 87.7 bn (+4% y/y, -8% q/q) and PAT of Rs 33.5 bn (+10% y-o-y, -44% q-o-q), below our estimates of Rs 108.8 bn, Rs 96.4 bn and Rs 35 bn, respectively. Sequential drop in revenues should be seen in the context of (i) sale of assets to the InvIT during Q1FY22, and (ii) negative contribution from deferred regulatory adjustment of Rs 3.3 bn in comparison to positive contribution of Rs 5.2 bn in Q1FY22. Management attributed the delta in regulatory adjustment primarily to a change in deferred tax adjustments, that was reflected in lower effective tax rate of 15% for the quarter.
Asset capitalisation of Rs 76 bn in Q2FY22, projects in hand of Rs 275 bn
Asset capitalisation (on consolidated basis) for the quarter was at Rs 76.6 bn (-26% y/y) while capex was at Rs 25.9 bn (-16% y/y). For H1FY22, asset capitalisation and capex stood at Rs 133 bn and Rs 37 bn, respectively. We highlight that Power Grid had commissioned Raigarh-Pugalur line which majorly contributed to asset capitalisation of Rs 215 bn in FY2021. We estimate asset capitalisation (consolidated) of Rs 187 bn (management guidance Rs 170-200 bn) while capex is likely to remain limited at Rs 86 bn in FY2022e. No new investment approvals were given in Q2FY22 as against Rs 22 bn given in Q1FY22. Ordering activity continued to remain muted in H1FY22.
We note that PWGR currently has projects of Rs 275 bn in hand comprising TBCB projects of Rs 138 bn and regulated return projects of Rs 137 bn. Against these projects, standalone CWIP stands at Rs 112 bn and another Rs 45 bn under TBCB. New bid opportunities of Rs 265 bn are estimated to come up over FY2023e.
Maintain BUY rating with revised Fair Value estimate of Rs 210/share
We remain positive on Power Grid on account of (i) attractive valuations at 8.4X P/E and 1.5X P/B and dividend yield of 5%, (ii) visibility on earnings growth trajectory as the company will capitalise on projects aggregating Rs 275 bn over the next three years, and (iii) incremental opportunities in intra-state and inter-state transmission. We maintain our Buy rating with a revised fair value of Rs 210/share (from Rs 205/share).