Power Grid's Q4FY18 results (Outperformer) - Another year of Strong commissioning
Q4FY18 result highlights
- PGCIL’s projects capitalized in Q4FY18 was Rs84.2bn (-35% yoy and +45% qoq). Total projects capitalised in FY18 was Rs279bn (-4% up yoy; Rs273bn in Standalone and Rs6bn in tariff based competitive bid projects) in line with the expectation. We expect total capitalisation of Rs240bn in Standalone Company and Rs40bn in tariff based competitive bid projects in FY19E (under subsidiaries).
- PGCIL incurred capital expenditure of Rs78.9bn (-6% yoy and +32% qoq) in Q4FY18. FY18 capital expenditure was Rs258bn, highest capital expenditure in its history.
- Net sales increased by 19%/17% yoy to Rs80.5bn/301bn in Q4FY18/FY18. Transmission revenues increased by 15%/13% yoy to Rs75.2bn/Rs288bn aided by commissioning of projects worth Rs325bn in the past four quarters.
- Adjusted PAT grew by 8%/12% yoy to Rs20.7bn (vs est of Rs22.6bn)/Rs84bn in Q4FY18/FY18. Growth in profit has not been commensurate with revenue growth primarily led by increase in salary expenses towards wage pay revision (total impact of Rs3.5bn in FY18). The unexpected increase in salary may be allowed by the regulator as a pass through.
- PGCIL won two TBCB projects worth Rs22.4bn during FY18.
Key positives: FY18 commissioning of Rs279bn and strong guidance of commissioning in FY19E.
Key negatives: Rise in employee expenses
Impact on financials: We downgrade 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 16% CAGR over FY18-20E, led by a 16% CAGR in regulated (invested) equity in the transmission business. We believe current valuations of 11.5x FY19E standalone earnings, 1.7x 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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