Power Grid rating – Buy: Strong show by transmission segment

By | February 20, 2021

Energy Grid score – Purchase: Robust present by transmission phase

Valuations at 1.5x FY22e P/BV and ~7% FY22e dividend yield remain attractive for a company with steady RoEs of ~17%. Maintain Buy, with DCF-based TP of Rs 248/sh.Valuations at 1.5x FY22e P/BV and ~7% FY22e dividend yield stay enticing for a corporation with regular RoEs of ~17%. Keep Purchase, with DCF-based TP of Rs 248/sh.

Energy Grid (PWGR)’s outcome highlights robust underlying numbers for its Transmission phase—implying ~18% y-o-y progress. Reported S/A PAT was additional aided by larger different revenue, leading to a 24% y-o-y rise. PWGR has gained Rs 90-100 bn of awards in Q3, which is a constructive, given a declining order guide. Valuations at 1.5x FY22e P/BV and ~7% FY22e dividend yield stay enticing for a corporation with regular RoEs of ~17%. Keep Purchase, with DCF-based TP of Rs 248/sh.

Revenue boosted by larger different revenue
PWGR’s adj. S/A PAT was up 25.4% y/y to Rs 33 bn (16% forward of our est.) on account of upper different revenue. Even adjusted for a similar, underlying transmission numbers are robust and indicate ~18% y-o-y progress, in our view. Different revenue was up 25.7% y-o-y to Rs 6.4 bn. This was led by larger late fee surcharge revenue and better dividends from subsidiaries.

Profitability within the Telecom phase declined 16% y-o-y to Rs 0.9 bn, and for the Consultancy phase, it fell 38% y-o-y to Rs 0.4 bn. Capitalisation for the quarter stood at Rs 6.8 bn, whereas capex was at Rs 29.4 bn on the group degree.

Administration commentary highlights
PWGR famous billing realisation improved and stood at 95.7% for 9M. Receivables additionally declined to 63 days on the finish of Q3 (v/s 69 days in Q2FY21 and 86 days in Q1FY21). The co. plans to scale back this to 50–55 days. PWGR has filed the draft concern of InvIT and is awaiting SEBI clearance for a similar. The co. plans to launch the problem by the top of March.

Decline in capitalisation might affect progress, however valuations enticing
The latest awarding of Rs 90–100 bn gives some respite to a declining order guide. Whereas the awarding of transmission schemes underneath renewable integration presents an excellent alternative for PWGR to win new awards, our checks counsel continued challenges, which might result in the deferment of awarding. If new orders don’t proceed to come back in, a declining order guide might affect the tempo of progress in profitability.

Nevertheless, subsequently decrease capex (together with the elimination of DDT) additionally implies potential for larger dividends (FY22e div. yield of ~7%). Apart from, the long term image stays intact as funding in renewable vitality and progress in energy demand would necessitate the necessity for transmission works.

Valuation at 1.5x FY22e P/BV stays enticing for a corporation with regular RoEs of ~17% and doesn’t seize any progress potential (EPS FY20–23e: 9% CAGR). Keep Purchase.

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