Buy Power Grid Corporation of India; target of Rs 290: Sharekhan

Sharekhan's research report on Power Grid Corporation of India

Q1FY2024 standalone PAT declined by 6% y-o-y to Rs. 3,543 crore (13% below estimate) due to lower transmission income for the previous period, steep fall in earnings from the consultancy business, and continued subdued trend of asset capitalisation. Standalone/consolidated asset capitalisation was muted at Rs. 652 crore/Rs. 1,615 crore, down 51%/26% y-o-y in Q1FY2024. Overall, receivables increased by 48% q-o-q to Rs. 7,140 crore as of June 2023. Management expects the transmission capex to pick-up and has estimated capex of Rs. 1.71 lakh crore over the next nine years. This would mean a rebound in capex in the range of Rs. 20,000-25,000 crore for a few years starting from FY2025-FY2026. The company has received smart metre order from Gujarat discoms which would require an investment of Rs. 4,067 crore; management has guided for mid-teen RoE on smart meter investment.

Outlook

We maintain our Buy rating on Power Grid with a revised PT of Rs. 290 (rollover of valuation to FY2025 earnings estimate). The valuation of 1.7x FY2025E its P/BV seems attractive, considering a decent growth outlook, healthy RoE of 19%, and a dividend yield of ~6%.