Power Grid’s Q3FY18 results (Outperformer) - Commissioning inline
Q3FY18 result highlights
- PGCIL’s projects capitalized in Q3FY18 are Rs60bn (-12% yoy and -40% qoq). Total projects capitalised in 9mFY18 are Rs195bn (+22% up yoy). We expect total capitalisation of Rs250bn in Standalone Company and Rs40bn in tariff based competitive bid projects in FY18 (under subsidiaries).
- PGCIL incurred capital expenditure of Rs60bn (+15% yoy and +5% qoq) in Q3FY18. Total capital expenditure are Rs179bn in 9mFY18 (+12% yoy). We estimate a capital expenditure of Rs210bn in Standalone Company and Rs40bn in tariff based competitive bid projects in FY18.
- Net sales increased by 12% yoy to Rs75bn in Q3FY18. The transmission revenues increased by 14% yoy to Rs73bn aided by commissioning of projects worth Rs325bn in the past four quarters. The consultancy revenues were Rs1.4bn (-11% yoy) whereas telecom revenues were Rs1.7bn (+21% yoy).
- PAT grew by 10% yoy to Rs21.4bn in Q2FY18, below our estimate of Rs22.6bn. Total increase in salary towards pay revision is ~Rs1bn per quarter whereas management expects half of the increase i.e. Rs0.5bn to be allowed by the regulator to be recovered from beneficiaries. The assumed recovery has been recognised as revenue for the quarter.
Key positives: Inline commissioning during the quarter
Impact on financials: Marginal downgrade in FY18E/FY19E earnings estimates by 3%/2% due to higher employee cost.
Valuations & view
We expect PGCIL’s earnings to register a 15% CAGR over FY17-20E, led by a 15% CAGR in regulated (invested) equity in the transmission business. We believe current valuations of 10.8x FY19E standalone earnings, 1.8x FY19 P/BV and 17% FY19E ROE are cheap considering the strong earnings growth profile over the next 2 years. We reiterate Outperformer rating with a revised DCF based target price to Rs245 (12xFY19 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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