Power Grid's Q3FY19 results (Outperformer) - Strong commissioning
Q3FY19 result highlights
- PGCIL’s projects capitalized in Q3FY19 were Rs82bn (+36% yoy and +72% qoq). 9mFY19 capitalisation came in at Rs166bn (decline of 15% yoy). However, the capitalisation in standalone entity was Rs127bn and capitalisation in TBCB projects, being implemented through SPV, was Rs39bn. We expect total capitalisation of Rs190bn in Standalone Company and Rs60bn in tariff based competitive bid projects in FY19E (under subsidiaries).
- PGCIL incurred capital expenditure of Rs60bn (+1% yoy and +4% qoq) in Q3FY19 while capital expenditure was Rs182bn for 9mFY19. We estimate a capital expenditure of >Rs250bn in FY19 (FY18 capital expenditure was Rs258bn)
- Net sales increased by 11%yoy to Rs83bn in Q3FY19. Transmission revenues increased by 13% yoy to Rs82bn aided by commissioning of projects worth Rs208bn (on standalone) in the past four quarters.
- Adjusted PAT in Q3FY19 grew by 9% yoy to Rs23.1 bn (est of Rs24.7bn) in line with transmission revenues. Reported PAT grew by 14% yoy to Rs23.3bn in Q3FY19. PAT for the quarter has been adjusted for past period earnings of Rs286m. Consultancy and telecom revenue for the quarter came in at Rs1.6bn/Rs2.0bn, an increase of 9%/13% yoy
- CERC draft regulations are largely positive for the power grid as base ROE has been maintained barring minor tightening of incentives for HVDC systems.
Key positives: Strong commissioning of Rs82bn in Q3FY19; 9m TBCB profit of Rs1.3bn; proposed CERC regulations
Impact on financials: We downgrade our earnings estimates in FY19E/FY20E by 2%/5% to account for lower commissioning in standalone entity; introduce FY21E EPS of Rs22.7
Valuations & view
We expect PGCIL’s earnings to register a 13% CAGR over FY18-20E, led by a 14% CAGR in regulated (invested) equity in the transmission business. We believe current valuations of 9x FY20E 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 DCF based revised target price to Rs240 (12xxFY20 earnings). Key risk: slow order win in new TBCB Projects
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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