Re: {LONGTERMINVESTORS} Powergrid - Thread
RAJESH DESAI
Power Grid Corporation of India (PGCIL) is planning to set up the 765 kv Raichur Solapur transmission system. The company aims to complete Rs 1,930-crore project by first quarter of 2014. The project is expected to provide a major boost for inter-region power transmission. The company will establish reliable and resourceful infrastructure for import of power for new grid to southern region during peak demand as well as export of surplus power from south during off-peak demand period.
PGCIL is India’s principal electric power transmission company. It owns and operates most of India’s inter-state and inter-regional electric power transmission systems with inter-regional power transfer capacity of about 20,800 MW and wheels nearly 45% of total power generated across India.
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CA. Rajesh Desai
RAJESH DESAI
Power Grid Corporation of India is exploring the entry into 'Wire Business' of the Distribution Sector in power system, and in line with the decision of its Board, will be filing a petition with Odisha Electricity Regulatory Commission (OERC) for exploring issuance of Distribution License for 'Wire Business' only, for a few districts in the Central Electricity Supply Utility of Orissa (CESU) area in Odisha.
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CA. Rajesh Desai
Rajesh Desai
PGCIL: Q3 to Disappoint; Equity Dilution Likely
We interacted with PGCIL management to get an update on execution. While the Street may be negatively surprised on Q3 execution, long-term targets remain intact. PGCIL may revise its 12th plan capex target of Rs 1 tn upwards and hence would need fresh equity infusion. Additionally, de-emphasizing Short Term Open Access (STOA) income (contributed 150 bps to core RoE) is likely to be negative.
We maintain our earnings estimates. However, we revise our SoTP-based TP downwards to Rs 131 (vs. Rs 141) as we factor in lower core sustainable RoE of 16.5% (vs. 17.5%) due to lower contribution from STOA going forward.Maintain BUY with 14% upside from CMP of Rs 115. The stock trades at 13x FY13E EPS of Rs 8.6 and 11x FY14E EPS of Rs 10.5 and 2x FY13E BVPS of Rs 56 and 1.8x FY14E BVPS of Rs 63.
Key takeaways:
· Capitalization in Q3 likely to be weak at Rs 25-30 bn (H1FY13 at Rs 68 bn) due to prolonged monsoons. However, management guided for increased pace of commissioning in Q4FY13 and expects FY13 at Rs 160-180 bn (Rs 141 bn in FY12). We have factored in capitalization of ~Rs 160 bn in FY13 and FY14 each and hence no change in our estimates.
· Equity dilution likely; current 12th plan capex target of Rs 1 tn may be revised upwards. According to the management, PGCIL is adequately funded for its 12th plan target at execution pace of Rs 160-180 bn pa. However, it expects an upward revision in 12th plan capex target driven by: (a) Green Energy Corridors with an opportunity size of ~Rs 430 bn (may be allocated to PGCIL or through PPP), (b) JVs with state transcos (opportunity size ~Rs 550 bn), (c) PPP (opportunity size ~Rs 250 bn).
· Contribution from STOA would get marginalized: Post the failure of northern grid, PGCIL has been de-emphasizing on sale of power through STOA. Income from STOA contributed ~150 bps to PGCIL’s FY12 core RoE of 17.5%. Management expects income from STOA to remain at Rs 300 bn p.a. vs. FY12 levels of Rs 325 bn.
With our best regards,
ENAM Direct Research
CA. Rajesh Desai