Power Grid reported PAT of Rs 33 bn (+9% y-o-y) in Q1FY22 on the back of asset capitalisation of Rs 56 bn, and regardless of moderated surcharge revenue through the quarter. PWGR has projects of Rs 351 bn in hand against which capex of Rs 216 bn has currently been incurred, and presents close to-term development visibility. In addition to close to-term possibilities of Rs 108 bn, the corporation will look to garner the lion’s share from medium-term possibilities in excess of Rs 400 bn. Attractive valuations at 8.5X P/E and 1.5X P/B hold us positive. Maintain Buy with revised FV of Rs 205 (from Rs 195 post-bonus).
Earnings marginally under estimate
Power Grid reported revenues of Rs 107.3 bn (+9% y-o-y, +6% q-o-q), Ebitda of Rs 95 bn (+9% y-o-y, +7% q-o-q) and PAT of Rs 33 bn (+9% y-o-y, -4% q-o-q), in line with our estimates. Lower-than-estimated PAT was on account of (i) decrease revenue from the telecom organization (ii) decrease other revenue on account of a drop in surcharge revenue to Rs 550 mn in Q1FY22. Exceptional revenue of Rs 30 bn through the quarter was on account of sale of units of PGInvIT received in lieu of a transfer of 74% ownership of TBCB assets.
Asset capitalisation of Rs 56 bn in Q1FY22, projects in hand of Rs 351 bn
Asset capitalisation (on consolidated basis) for the quarter was at Rs 56 bn (+373% y-o-y) when capex was at Rs 11 bn (-42% y-o-y). We estimate asset capitalisation (consolidated) of Rs 187 bn when capex is probably to stay restricted at Rs 86 bn in FY22e. We note that PWGR presently has projects of Rs 351 bn in hand comprising TBCB projects of Rs 168 bn and regulated return projects of Rs 183 bn. Against these projects standalone CWIP stands at Rs 148 bn and one more Rs 66 bn beneath TBCB.
Maintain Buy rating
We stay positive on Power Grid on account of (i) appealing valuations at 8.5X P/E and 1.5X P/B and dividend yield of 5% (ii) visibility on earnings development trajectory as the corporation will capitalise on projects aggregating Rs 446 bn more than the next 3 years that will yield 6% CAGR in earnings up to FY2025E and (iii) incremental possibilities in intra-state and inter-state transmission. Maintain Buy.