Edelweiss' research report on India Grid Trust
Grid enhancement projects and distribution reforms are set to drive latent power demand and boost investment opportunities in transmission space. We expect INR0.75tn projects to be awarded under TBCB mode. This presents huge opportunity for IndiGrid via its sponsor Sterlite Power, which has historically maintained 30% market share in TBCB orders. This, along with M&A opportunities in transmission, bodes well for IndiGrid.
Outlook
We like IndiGrid’s business model, which entails no volume and tariff revision risks, unlike PGCIL, but fetches similar 15% return (yield + DPU growth) p.a. We anticipate drop down of all ROFO assets to improve 400bps to 12.1% over the next four years, led by higher project IRRs and leverage benefits. We initiate coverage with ‘BUY’ and target price of INR 108 (15% upside) on FY20E, discounting cash flows at 11% COE.
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