Buy Power Grid; target of Rs 204: ICICI Direct

Net sales came in at Rs 6119.9 crore as per the new Ind AS. This was ahead of our estimate of Rs 5800 crore. The key beat came in from transmission segment revenues, which came in at Rs 5838.2 crore, up 29.3% YoY, way ahead of our estimate of Rs 5470.9 crore. Consultancy and telecom segment revenues came in at Rs 120.4 crore and Rs 110.4 crore, respectively Asset capitalisation totalled Rs 2462 crore while capital expenditure was Rs 5,585 crore. The management expects capitalisation at Rs 30000 crore in FY17E with the capex pegged at Rs 22500 crore Reported absolute EBITDA came in at Rs 5419.2 crore against our estimate of Rs 5048.6 crore. This was mainly on the back of strong growth in revenues, especially in the transmission segment Strong beat on revenues and EBIDTA led PAT to come in at Rs 1802 crore vs. our estimate of Rs 1490 crore.

Even after two strong years (FY15-16) of capitalisation, we expect PGCIL to continue its consistent trends in capitalisation (Rs 26933 crore in FY17E) and capex (Rs 22500 crore in FY17E). We believe this will drive reported revenues and PAT CAGR of 17% and 18%, respectively, in FY16-18E. The growth profile will drive RoEs from 13% in FY15 to 14.9% in FY18E despite a capex oriented business. Hence, with strong growth prospects, we further upgrade the target multiple to 1.9x from 1.6x earlier to revise the fair value to Rs 204/share. We retain it as our top pick in the sector.For all recommendations, click here 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.