Power Grid's Q1FY19 results (Outperformer) - Inline quarter
Q1FY19 result highlights
- PGCIL’s projects capitalized in Q1FY19 was Rs37bn (including FERV of Rs11.8bn) (+3% yoy and -56% qoq). We expect total capitalisation of Rs240bn in Standalone Company and Rs40bn in tariff based competitive bid projects in FY19E (under subsidiaries). Total projects capitalised in FY18 was Rs279bn (Rs273bn in Standalone and Rs6bn in tariff based competitive bid projects)
- PGCIL incurred capital expenditure of Rs64bn (+2% yoy and -16% qoq) in Q1FY19. We estimate a capital expenditure of >Rs260bn in FY19 (FY18 capital expenditure was Rs258bn)
- Net sales increased by 15%yoy to Rs83.4bn in Q1FY19. Transmission revenues increased by 14% yoy to Rs79.1bn aided by commissioning of projects worth Rs274bn in the past four quarters.
- Adjusted PAT grew by 9% yoy to Rs22.4bn (vs est of Rs22.4bn) in Q1FY19. Note that increase in employee expenses of Rs429m towards pay wage revision impacted profit negatively. The increase in salary due to wage revision may be allowed by the regulator as a pass through.
Key positives: Capital expenditure of Rs64bn
Key negatives: Weak commissioning of Rs25bn (excluding FERV)
Impact on financials: We maintain our earnings estimates in FY19/FY20E by 5%/4% to account for under recovery in employee expenses.
Valuations & view
We expect PGCIL’s earnings to register a 15% CAGR over FY18-20E, led by a 16% CAGR in regulated (invested) equity in the transmission business. We believe current valuations of 10x FY19E standalone earnings, 1.5x FY19E P/BV and 16% FY19E ROE are cheap considering the strong earnings growth profile over the next 2 years. We reiterate Outperformer rating with a based target price to Rs245 (13.4xFY19 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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