Power Grid 1QF13 Result Review I TP – Rs126 I Rating: BUY
Capitalization inline, Maintain BUY
Power Grid Corporation (PGCIL) posted net sales/PAT of Rs28.8/8.7 bn against SSLe of Rs 27.79bn and Rs8.64bn. Sales and PAT are in-line with SSLe as the capitalisation came in at Rs4.1 bn against SSLe of Rs4.5 bn.
Quarterly capitalisation is up 411% YoY: Transmission income in 1QF13 grew by a strong 32.7% YoY but fell 4% QoQ at Rs27.13bn. (Adjusted to revenue pertaining to deferred tax, transmission income is up by 10% QoQ). The company capitalised Rs4.1bn during the quarter. Income from telecom business came in at Rs603.9mn higher than SSLe of Rs465mn. Personnel cost was up 6% YoY, in-line with SSLe of Rs2.24bn. Other expenses was up 36.9% YoY at Rs2bn, 14% higher than SSLe of Rs1.75bn.
Maintains capex at Rs 200bn for F13, profit CAGR to remain at 15% plus over FY12-F14: PGCIL plans to spend Rs 200 bn (Rs 178 bn in F12) during F13e. Spike in capitalisation in F12, to drive 23% plus CAGR in Sales over F12-F14. We estimate PAT CAGR of 20% over F12-F14e. We expect the company to capitalise Rs185 bn in F13e, 42% higher than F12.
Management presses for no dilution: The management’s has guided for zero dilution as it believes it would finance its CWIP with 1-2% higher debt (which the management feels it would be allowed by the regulator). We had earlier estimated the company to go for 10% dilution in F15e.
Premium valuation justified for its stable business: At the CMP of Rs111, the stock is trading at a 2.0x and 1.7x on SSLe F13e and F14e BV. We believe, the company is trading at ~25% premium to NTPC’s valuation. We feel the premium valuation is justified as (1) low cost of transmission (~5% of the total power tariff) to lead minimal default (2) growth in other business (Short term open access, telecom and consultancy to grow at least by 5%) which percolates directly to the bottom line (3) better earning visibility (20% CAGR in PAT over F12-F14e, and leads the earnings growth in the entire power space with an increasing RoE). We are removing possible dilution in F15e from our DCF estimates. We maintain 20% premium to our benchmark multiple of NTPC to value PGCIL at Rs 126, through our average valuation methodology. Maintain BUY.
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