ICICI Direct recommended hold rating on Power Grid Corporation with a target price of Rs 200 in its research report dated February 01, 2019.
ICICI Direct's research report on Power Grid Corporation
PowerGrid reported Q3FY19 results that were muted as the capitalisation rate was below expectations. Reported revenues came in at Rs 8417.2 crore vs. estimate of Rs 8621.1 crore. Transmission revenues were in line with estimates for Q3FY19, which grew 13% YoY. On the other hand, consultancy revenues grew 8.9% YoY while telecom revenues increased ~12.9% YoY On the negative side, capitalisation for Q3FY19 came in at Rs 6860 crore vs. expectation of Rs 8000 crore. For 9MFY19, the same is at Rs 12745 crore while for TBCB projects the same was at Rs 3902 crore. The company now expects total capitalisation of Rs 26000 crore for FY19E while the same for the standalone business will be at Rs 20000-21000 crore. Capex for FY19E will be Rs 25000 crore while the same for 9MFY19 was at Rs 18242 crore EBITDA was at Rs 7569.4 crore, higher than our estimate of Rs 7414.1 crore. Lower-than-expected employee & other costs was the key reason for the beat Consequently, PAT came in at Rs 2331.2 crore.
Rising capitalisation of TBCB projects and higher share of the same in the upcoming projects will lead to a decline in the return profile of the company from FY20E onwards. We expect the company’s RoE to decline to 15.1% in FY20E from 16.5% in FY19. Similarly, lower capex would also impact the PAT CAGR from 14% earlier to 12% now in FY18-20E. Hence, we believe that P/B multiples will see moderation, going ahead. We downgrade the stock from BUY to HOLD as we now value it at 1.4x P/BV of FY20.
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