Buy Power Grid Corp; target of Rs 120: PINC Research

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Buy Power Grid Corp; target of Rs 120: PINC Research

PINC Research is bullish on Power Grid Corporation of India (PGCIL) and has recommended buy rating on the stock with a target of Rs 120 in its September 27, 2011 research report.

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PINC Research is bullish on Power Grid Corporation of India (PGCIL) and has recommended buy rating on the stock with a target of Rs 120 in its September 27, 2011 research report.

"Power Grid Corporation of India (PGCIL) plans to spend ~Rs200bn/year during the XIIth Plan to meet its marginally reduced capex target of Rs1.02trn. In order to achieve this it plans to award equipment orders worth ~Rs150- 180bn/year. This capex will be incurred on projects spilled over from the XIth Plan, UMPPs, HPCTC lines and system strengthening. Increased capex and capitalisation shall translate into 16% earnings CAGR over FY11-17E."

"The management hinted at stagnating growth for its consultancy division as the government funded APDRP programme nears completion. The company plans to offset this by undertaking fresh assignments from different regions. The management also expects the telecom division to witness healthy growth as more towers are leased. Delayed payments from a few states coupled with difference in the revenue recognition and billing translated into higher debtor days during FY11 for PGCIL. However, this is expected to improve as distribution tariffs are revised and billing is based on new tariff orders."

"PGCIL plans to capitalise its huge FY11 CWIP over the next couple of years, thus providing a clear view of growth in regulated equity over FY12-13. This coupled with its ongoing capex provides strong visibility on its earnings going forward. We expect its capitalisation run rate to improve during the XIIth Plan period, thus aiding 16% earnings CAGR over FY11-17E. We reduce our consultancy division estimates marginally to reflect a muted growth going forward. Re-iterate 'BUY' with a marginally reduced target price of Rs 120 per share from Rs 122 per share earlier," says PINC Research report.

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