Power Grid Corporation's Q2FY20 results (Outperformer) - Inline quarter; Asset monetization on cards
Q2FY20 result highlights
- PGCIL commissioned projects worth Rs42.1bn (- 11%yoy) in Q2FY20, with projects on cost plus basis at Rs40.7bn (-14% yoy) and Tariff Based Competitive Bid (TBCB) projects at Rs1.4bn. We expect total capitalisation of Rs200bn in Standalone Company and a minor contribution from tariff based competitive bid projects in FY20E (under subsidiaries). H1FY20 commissioning and capital expenditure was Rs57bn and Rs56bn respectively.
- Net sales grew by 4%yoy to Rs90.4bn in Q2FY20 aided by 4% growth in transmission income on back of commissioning of Rs184bn worth of projects. Consultancy and Telecom revenue grew by 25% yoy to Rs1.7bn and 23% yoy to Rs1.9bn.
- PAT for Q2FY20 grew 9.4%yoy to Rs25.2bn (vs est of Rs24.6bn) in line with the commissioning of the assets.
- PGCIL has started reporting quarterly consolidated financials from the Q1FY20. TBCB contribution is currently 3% to the consolidated revenues and the contribution is expected to increase with commissioning of new TBCB projects. Consolidated adjusted profit for Q2FY20 grew by 9.5%yoy to Rs25.7bn.
- In the current quarter, PGCIL won five new TBCB projects worth Rs38bn with a levelized tariff of ~Rs4bn. With this, the total value of TBCB projects under implementation is Rs270bn.
Key positives: Win in five TBCB Projects of worth Rs38bn; Asset monetisation approval by boards through INVIT.
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 TBCB projects to aid in earnings from FY20E onwards. We believe current valuations of 8.2x FY21E standalone earnings, 1.4x FY21E P/BV and 17%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 (11xFY20 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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