Buy Power Grid Corp; target of Rs 125: Motilal Oswal
Brokerage house Motilal Oswal is bullish on Power Grid Corporation of India (PWGR) and has recommended buy rating on the stock with a target price of Rs 125, in its research report October 2013.
December 03, 2013 / 16:39 IST
Motilal Oswal's report on Power Grid Corporation of India (PWGR)
"Power Grid Corp of India's (PWGR) targeted capex of INR1.1t in 12th Five Year Plan (FY13-17), which is up 2x from 11th Plan, is on track with 85 percent of the projects already under implementation. Successful execution will drive 20 percent CAGR in Regulated Asset Base over FY13-FY17E and 17 percent CAGR in regulated earnings. Growth rates for core business would taper off from 20 percent in FY15E to 15 percent in FY17E, given the base effect, as capitalization remains uniform at ~INR200-220b pa over FY14E-17E. For PWGR, growth option beyond 12th Plan can be limited given project award through a competitive bidding and size of opportunity would depend on its market share. However, growth avenues exist in the form of Green Energy Corridor (INR260b opportunity), JVs with state (currently INR88b opportunity) and spill-over of 12th Plan projects.""PWGR's gross DER as in FY13 stood at 2.5x, higher than 2.33x followed by regulated entities. Also, contribution of equity (net worth) to projects under construction was lower than normative 30 percent. Higher negative working capital, cash flow accretion from lower debt repayment v/s depreciation recovery under tariff, partially funded advances etc for under construction projects. PWGR was however short of core equity and thus dilution was imminent, in our view. Lower equity in CWIP also helped reported RoE (16.5 percent for FY13), despite core RoE being ~16 percent. Current fund raising would provide the growth capital over next 3-4 years.""We expect PWGR's earnings to post a CAGR of 14 percent (EPS CAGR of 7.2 percent given dilution) on the back of robust capitalization. We factor capitalization of INR185b/ INR200b in FY14E/15E, lower than the management's guidance of capitalization in line with capex (implying INR220b). We also believe that robust order awards and capex over FY11-13 could lead to higher capitalization. PER of 9.7x and P/BV of 1.4x (RoE of 14.7 percent), and dividend yield of 3.1 percent (earnings yield of 10.3 percent) on FY15E basis further provides comfort. Buy the stock with a target price of Rs 125," says Motilal Oswal research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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