Power Grid keen to secure state electricity boards payment

Moneycontrol Bureau

Power Grid Corporation of India (PGCIL) wants to de-risk itself from delayed payments by state electricity boards (SEBs), whose weak credit profile is a concern for the power utility company. PGCIL, primarily engaged in laying inter-state transmission lines wants the  Central Electricity Regulatory Commission (CERC) to set up a power security development fund (PSDF)in which the central government and states would  be required to deposit stipulated funds which can be withdrawn by the former, if in case there is a payment delay by SEBs. "The regulatory body in consultation with Power Grid will form a PSDF fund to ensure smooth and timely payments," R.T Agarwal, director (finance) told moneycontrol.com.

According to other company officials, debtors outstanding beyond 60 days is around Rs 300 crore as on date. "Banks have stopped supporting SEBs due to their deteriorating financial health and poor recovery can impact our expansion plans," says an official.

R. N Nayak, chairman and managing director, PGCIL says customers are paying within the stipulated timeframe, but simultaneously, he believes that it would be a good idea to secure payments. 

These statement strongly indicate the company does not want to take any risk as it needs to deploy cash on expanding around 11000 megawatt capacity in FY13 alone and for the 12th plan period ( 2012-2017) it has earmarked Rs 1 lakh crore towards expansion. Last week PGCIL reported a 37% jump in its net profit at Rs.1,032 crore for the January-March quarter on a 32% higher turnover of Rs 3,409 crore, year-on-year due to timely commissioning of projects.
 
Here's what analysts have to say about the company:
 
Deutsche Bank: The street seems to be concerned about PGCIL's around 50% of its capex dedicated to private sector power projects, which are facing challenges relating to coal supplies, land acquisition and environmental clearances. While we agree that private sector projects are getting delayed and may not operate at an optimal level in case coal supplies continue to remain constrained. But we highlight that the CERC has consistently supported transmission sector development through favourable orders. We assign a ‘buy’ rating on the stock with a target of Rs 125/share.
 
Geojit BNP Paribas: For the whole of FY12, the company has completed projects worth Rs.13000 crore, higher than market estimates. This will lead to slight upside for FY13 estimates. We maintain a 'buy' rating on the company stock with a target price of Rs 122 over one year. 
 
Motilal Oswal Securities: The power sector has seen significant valuation de-rating due to concerns over delayed capacity additions, merchant prices, lower demand, and fuelsupply issues. We are positive about companies that are relatively better positioned on these fronts. Power Grid is amongst our top pick in the sector and the firm has assigned a 'buy' rating on the stock with a target price of Rs 123.
 
CLSA last week upgraded PGCI to 'buy' from  'outperform', while maintaining its target price at Rs 125, citing stronger-than-expected orders.

Shaheen Mansuri
shaheen.mansuri@network18online.com