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Feb 15, 2013, 02.16 PM IST | Source: Moneycontrol.com

Buy Power Grid Corporation; target Rs 127: Motilal Oswal

Motilal Oswal is bullish on Power Grid Corporation (PWGR) and has recommended buy rating on the stock with a target price of Rs 127 in its February 13, 2013 research report.

Motilal Oswal is bullish on Power Grid Corporation (PWGR) and has recommended buy rating on the stock with a target price of Rs 127 in its February 13, 2013 research report.

"PWGR's adjusted PAT for 3QFY13 was INR11.1b (INR225m adjusted for exchange rate variation), 10% above estimate, primarily driven by higher other income and lower tax/PBT ratio at 25% (our estimate was 32%).

Capitalization lower than estimated: PWGR's capitalization for 3QFY13 stood at INR25.9b, lower than our estimate of INR40b and flat QoQ. We estimate capitalization of INR170b in FY13, while YTDFY13 (till January 2013) capitalization stands at INR105b. While this might appear difficult to achieve, we notice that capitalization is bunched up in 4Q. PWGR had achieved INR60b in February/March 2012 (residual capitalization of INR65b for February/March 2013 to attain our FY13 estimate).

Might need to raise equity: PWGR incurred capex of INR55.4b in 3QFY13 and INR150b for YTDFY13 (till January 2013). Lower capitalization and higher capex could lead to increase in CWIP, which along with lower equity surplus could lead to need for fund raising, in our view.

Upgrading earnings estimates; Buy: We marginally revise our FY13 earnings estimates for PWGR to factor in higher core earnings / other income. We now expect PWGR to report an EPS of INR9.4 for FY13 and INR10.7 for FY14. The stock trades at 10.5x FY14E EPS and 1.8x FY14E BV. Maintain Buy with a target price of Rs 127," says Motilal Oswal research eport.

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