Stock corner: Maintain ‘buy’ on Power Grid with target price of Rs 244

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Published: November 14, 2019 2:46:28 AM

PWGR has noted that India’s current low per capita electricity consumption (a third of the world average) and focus on renewable energy (RE) investment will necessitate growth in transmission works.

PWGR expects a capitalisation of Rs. 20,000-22,000 crore for FY21.

PWGR has noted that India’s current low per capita electricity consumption (a third of the world average) and focus on renewable energy (RE) investment will necessitate growth in transmission works. Transmission projects worth Rs. 47,800 crore corresponding to ~70GW of RE capacities have been identified for awarding. Of this, Rs. 14,700 crore has been allocated to regulated tariff mechanism (RTM) and tariff-based competitive bidding (TBCB) projects, while the balance is up for allocation. From a longer-term perspective, the company believes that India’s vision to reach 450GW of RE capacity by 2030 (from estimated 175 GW in 2022) would necessitate incremental investments of Rs. 2.8 lakh crore within transmission. By and large, PWGR expects the transmission sector to grow at 8-9% over the next 10 years.

Capitalisation run-rate at ~Rs. 20,000 crore for FY20/FY21. PWGR has claimed that a few right of way (RoW) issues related to its RaigarhPugalur project have been resolved; it also expects Phase 1 of the project (Rs. 9,000 crore) to be completed in February 2020 with subsequent commissioning in March 2020. We note that PWGR had set up a capitalisation target of Rs. 20,000-25,000 crore for FY20 and much of it is dependent on the commissioning of this project. The company has noted that issues pertaining to RoW have heightened due to forest clearances, issues in obtaining RoW near city areas and greater awareness among locals of their rights. However, it has not witnessed a severe impact for its under-execution projects. PWGR expects a capitalisation of Rs. 20,000-22,000 crore for FY21. Asset monetisation in the works. PWGR is looking to monetise assets through InvIT and has taken an inprinciple approval from the board.

Strong business and attractive valuations; maintain ‘buy’. Investment in renewable energy and growth in power demand should drive the need for transmission works. INR480b of projects are envisaged to be awarded for renewable integration. PWGR’s recent award wins (won 7 out of 13 projects in YTD FY20) highlight its competitive positioning to win such projects as they arrive. Maintain ‘buy’ with a DCF-based TP of Rs. 244/share.

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