Power Grid Corporation's Q1FY20 results (Outperformer) - A sub-par quarter
Q1FY20 result highlights
- PGCIL’s projects capitalized in Q1FY20 was Rs14.7bn (-60% yoy), standalone at Rs14.2bn (-35% yoy) and Rs0.5bn (vs Rs15bn) of TBCB projects. Note that total projects capitalised in FY19 was Rs273bn (-8% yoy) – Rs210bn in Standalone and Rs66bn in tariff based competitive bid projects). We expect total capitalisation of Rs200bn in Standalone Company and nothing in tariff based competitive bid projects in FY20E (under subsidiaries).
- PGCIL incurred capital expenditure of Rs28bn (-56% yoy) in Q1FY20. Out of which, Rs23bn was in standalone and Rs5bn in tariff based competitive bid projects. Total projects in hand is Rs630bn (Rs400bn as CWIP, Rs90bn of TBCB projects and rest is still to be spent)
- Net sales increased by 4.5% yoy to Rs87bn in Q1FY20. Adjusted PAT grew by 4% yoy to Rs23.4bn (vs est of Rs24.4bn) in Q1FY20.
- PGCIL has started reporting quarterly consolidated financials from the current quarter as TBCB has started contributing 3% to the consolidated profit and contribution is expected to increase with commissioning of new TBCB projects. Consolidated adjusted profit for the quarter grew by 8.4% to Rs24.4bn. TBCB projects revenue and profit was Rs3.9bn and Rs750m respectively.
- Note that PGCIL guidance for commissioning of Rs210bn is dependent on completion of Raichur Pugalur HVDC line (Rs100bn)
Key positives: Win in two TBCB Projects worth Rs30bn
Key negatives: Dwindling cost plus projects; Increase in receivables
Impact on financials: We maintain our earnings estimates in FY20E/FY21E
Valuations & view
We expect PGCIL’s standalone earnings to register a 10% CAGR over FY19-21E, led by a 10% CAGR in regulated (invested) equity in the transmission business. Moreover, we estimate consolidated profit to aid in earnings from FY20E onwards. We believe current valuations of 9.4x FY21E standalone earnings, 1.4x FY21E P/BV and 16%FY21E ROE are cheap considering the steady earnings growth profile over the next 2 years. We reiterate Outperformer rating with a based target price to Rs240 (12xFY20 earnings).
Power Grid Corp. of India is a power transmisson utilities company. Co. is engaged in the planning, coordination, supervision and control over inter-state transmission system and operation of national & regional power grids. Co.'s Power System Management business takes continuous action regarding operation and maintenance to seek to ensure compliance with prescribed standards as well as to achieve high availability of the system. In the telecom business, Co.'s brand name "POWERTEL" is the only utility in India having an overhead optic fiber network using optical ground wire on power transmission lines.
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