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Buy Power Grid Corporation; target of Rs 255: ICICI Direct

ICICI Direct recommended buy rating on Power Grid Corporation with a target price of Rs 255 in its research report dated August 02, 2017.

August 04, 2017 / 17:48 IST
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ICICI Direct's research report on Power Grid Corporation

Power Grid reported its Q1FY18 performance. Though in double digits, the numbers were lower than our estimates largely tracking lower-than-expected growth witnessed in the transmission segment (16.5% YoY growth vs. estimate of 23% YoY). Reported revenues increased 17.3% YoY to Rs 7181.4 crore (vs. I-direct estimate: Rs 7519.0 crore). Transmission segment revenue grew to Rs 6930 crore, up 16.5% YoY. On the other hand, consultancy revenues at Rs 212 crore were higher than our estimate of Rs 144.5 crore. However, telecom segment revenues of Rs 157.7 crore were lower than estimates of Rs 193.5 crore Asset capitalisation totalled ~Rs 3542 crore while capital expenditure was ~Rs 6333 crore. The management expects capitalisation at Rs 30000 crore in FY18E EBITDA for the quarter came in at Rs 6200 crore with corresponding EBITDA margins at 86% (vs. I-direct estimate of Rs 6466.3 crore, 86%). Employee expenses for Q1FY18 rose 49.7% YoY to Rs 406.3 crore on account of pay revision of employees. Finance costs for Q4FY17 were at Rs 1762.4 crore vs. our estimate of Rs 1700 crore, on the back of strong asset capitalisation of last few quarters PAT in Q1FY18 was at Rs 2052.4 crore, up 14% YoY vs. our estimate of Rs 2196.9 crore on account of miss in transmission revenues.

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Outlook

Given strong asset capitalisation over the last few years and consistency of the same over FY17-19E (average capitalisation of Rs 30000 crore) would enable PGCIL to report 17% and 20% revenue and PAT CAGR, respectively, over the same period. We believe PGCIL commands best operating matrices across utilities. We upgrade the fair value to Rs 255 (2x FY19E BV) and maintain BUY rating.