Power Grid Corporation's Q3FY20 results (Outperformer) - Good win ratio in tariff based competitive bidding
Q3FY20 result highlights
- In Q3FY20, Power Grid commissioned projects worth Rs52bn (vs Rs81.6bn in Q3FY19) while 9mFY20 capitalisation was Rs109bn (includes TBCB asset of Rs2.5bn). We expect total capitalisation of Rs220bn in Standalone Company in FY20. Note that PGCIL is expected to commission Raigarh Pugalur HVDC line worth Rs100bn in Feb 2020.
- Capital expenditure in 9mFY20/Q3FY20 was Rs105bn/Rs49bn (vs Rs182bn/Rs60bn). Full year capital expenditure target is Rs150bn.
- Net sales for the quarter came in at Rs93.5bn (+2% yoy growth) with revenue from Transmission segment at Rs88.1bn (+7% yoy growth), Telecom segment at Rs2.0bn (+1 yoy growth) and partially offset by decline of 8% yoy in consultancy services at Rs1.4bn.
- Adjusted PAT for Q3FY20 grew 14.6%yoy to Rs26.7bn (vs est of Rs25.6bn) led by higher transmission revenues.
- PGCIL has started reporting quarterly consolidated financials from the Q1FY20. TBCB contribution is currently 4% to the consol. revenues Consol. adjusted profit for Q3FY20 grew by 13.9%yoy to Rs26.7bn.
- In 9mFY20, PGCIL won seven new TBCB projects worth Rs66bn with a levelized tariff of ~Rs6.6bn. As a result, the total value of TBCB projects under implementation is Rs190bn. Note that PGCIL won seven out of 13 projects. We estimate PGCIL market share at 44% on basis of levelized tariffs for all the projects awarded till date in FY20.
Key positives: Win in two TBCB Projects of worth Rs20bn;
Key negatives: Adjusted gross revenue dispute with DOT for dues of Rs220bn for telecom business
Impact on financials: We revise our earnings estimates downwards for FY20E/FY21E by 4%/9% on lower expectations of commissioning of cost plus projects in FY21E; Introduce FY22E estimates.
Valuations & view
We expect PGCIL’s standalone earnings to register a 9% CAGR over FY19-21E, led by a 9% 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 8.6x FY21E standalone earnings, 1.3x 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 revised DCF based target price to Rs235 (10.8xFY21 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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