Buy Power Grid Corporation of India: target of Rs 220: Sharekhan

Sharekhan's research report on Power Grid Corporation of India

Power Grid’s regulated RoE model is resilient in current uncertain times and provide strong earnings visibility (19% PAT CAGR over FY21E-FY23E) and RoE of 19%. Unlike thermal power companies, Power Grid does not have overhang of ESG. Potential monetisation of 5 TBCB assets worth Rs. 7,164 crore and normalisation of outstanding dues from discoms (Rs. 6,477 crore as of September 2020) are key near-term catalysts. Likely proceeds from InvIT provide room for higher dividends. India’s aim to expand renewable energy capacity to ~445 GW (vs. 87GW in FY20) would entail a capex of Rs. 2.86 lakh crore in a decade for transmission lines, providing growth opportunity of 8-9% per year for Power Grid. Attractive valuation of 1.2x FY23E P/BV, healthy dividend yield of 5% and huge growth opportunity from RE capacity expansion makes us optimistic on the stock.

Outlook

Hence, we maintain a Buy on Power Grid with an unchanged PT of Rs. 220.