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Nov 14, 2017 05:06 PM IST | Source:

Buy Power Grid Corporation of India; target of Rs 252: Edelweiss

Edelweiss is bullish on Power Grid Corporation of India has recommended buy rating on the stock with a target price of Rs 252 in its research report dated November 06, 2017.

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Edelweiss' research report on Power Grid Corporation of India

Power Grid Corporation of India’s (PGCIL) Q2FY18 operating performance came in line with 16% revenue growth. Key highlights: a) 50% growth in capitalisation of assets at INR135bn and FY18 guidance of INR280-300bn capitalisation maintained; and b) management indicated that to counter tapering of inter-state project awards for FY18/19, PGCIL is targeting intra-state projects in JV with SEBs. We believe, PGCIL can sustain high capitalisation /capex ratio at more than 1.25x (FY17: 1.27x) till at least FY19 led by stepped-up focus on commissioning. We maintain our investment thesis: (i) regulated equity will post 18% plus CAGR over FY17-19E even on high base; and (ii) unlike the generation segment, core RoE is not contingent on utilisation / power demand growth in the system. New CERC norms (still 3-4 quarters away), where RoE could come under pressure, is key monitorable. Maintain ‘BUY’.

Strong capex visibility, reasonable capitalisation/capex ratio of 1.2x and steady regulated RoE of 15.5-16.0% render PGCIL a good cash proxy with steady returns. We maintain ‘BUY/SP’ with SOTP-based target price of INR252 (exit multiple of 1.9x).

For all recommendations report, click here

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