Steady quarter; capex upcycle continues
Power Grid (PWGR)’s 2QFY25 reported standalone (SA) PAT was in line with our estimate at INR37.1b (-3% YoY). On a consolidated basis, reported PAT was flat YoY at INR37.9b. In the analyst meet, 1) FY25 capex guidance was increased marginally to INR200b (INR180b previously), 2) capex and capitalization guidance for FY26 was INR250-300b while capitalization for FY27 was guided at INR400b, 3) PWGR highlighted that assuming a ~50% win rate, it could secure INR1.92t in upcoming project bids under NEP 2032, in addition to its current INR1.43t order book, implying a minimum cumulative capex of INR3t by 2032. Of the current order book, ~32% is from RTM projects, where the company earns a healthy 15% ROE.
Following 2QFY25 results, we moderate our FY25 PAT estimate marginally (-4%) due to 1H consolidated capitalization (INR40b), trailing previously provided guidance oof INR140-150b. PWGR declared an interim dividend of INR4.50 per share for FY25. We are building in FY25 DPS of INR 12, which is expected to rise to INR13.5 by FY27.
In the analyst meet, PWGR management highlighted a total capex potential of INR6.6t in Inter-State Transmission Systems, where PWGR holds a leading 50-60% market share. Management also highlighted six upcoming HVDC projects and three cross-border linkage projects (India-Bangladesh, India Myanmar, and India-Sri Lanka), in which PWGR remains well placed to compete and execute. As such, we believe capex and capitalization should continue on an upward trajectory in the coming years. PWGR is trading at FY27 PB of 3x with a dividend yield of 4.3%, which we think is attractive. We reiterate our BUY rating on the stock with a TP of INR426.
Power Grid is trading at attractive valuations with a dividend yield of 4.3%
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