Buy Power Grid Corporation; target of Rs 220: Emkay Global Financial

Emkay Global Financial's report on Power Grid Corporation

PGCIL’s asset capitalization in Q2FY21 increased by 153.2% yoy to Rs106.9bn, led by the commissioning of the first phase of the Raigarh-Pugalur HVDC project during the quarter. Capex, however, declined 14.4% yoy to Rs31bn vs. our estimate of Rs25bn. Revenue grew 4.3% yoy to Rs90.6bn, owing to 6.3% growth in the Transmission business, while revenue from Consulting/Telecom businesses fell 37.6%/4.3 yoy. EBITDA rose 5.5% yoy to Rs79.7bn, while margins improved 99bps yoy to 88.0% due to lower other expenses. Management has retained its FY21 capex and capitalization guidance of Rs105bn and Rs200- 250bn, respectively. We expect capitalization of Rs200bn in FY21 (another Rs82bn in H2FY21 related to the pending work of Raigarh-Pugalur HVDC project) and ~Rs173.3bn for FY22.

Outlook

PGCIL has total projects worth Rs410bn in hand and ~Rs179bn of projects are likely to be bid in H1FY21. We have maintained our estimates and TP of Rs220. Retain Buy on strong cash flow, high dividend yield of 6% and InvIT proposal to be executed in Q4FY21E.