MOSL: POWER GRID (Buy)-Expect strong double-digit IRRs in TBCB projects-A strong business and attractive valuations keep us optimistic
Power Grid: Expect strong double-digit IRRs in TBCB projects; A strong business and attractive valuations keep us optimistic
(PWGR IN, Mkt Cap USD15.3b, CMP INR197, TP INR287, 45% Upside, Buy)
Analysis suggests strong double-digit IRRs in TBCB projects
We analyzed the tariff-based competitive bidding (TBCB) projects from the annual reports of Power Grid’s (PWGR) subsidiaries. In our view, PWGR will generate more than 14% equity IRR (debt/equity ratio of 80/20) on its TBCB projects. The equity IRR on the three projects that are fully commissioned is ~24-38%. PWGR enjoys a competitive edge due to its (a) low cost of borrowed funds, (b) dominant position with suppliers and (c) vast geographical spread, which should continue driving healthy returns.
International experience: Even developed countries need to keep investing
Transmission order inflows are expected to be low over the next few years, but the long-term growth potential is huge. Experience from China and the US suggests that the transmission infrastructure continues increasing in tandem with generation (demand) growth. Renewable generation capacities, flexibility and redundancy requirements also aid transmission investment, as seen in the US/UK over the past few years. India, with just one third of the world’s per capita electricity consumption, has huge growth potential. Separation of carriage and content, as proposed in the draft Electricity Act, will provide another growth stream to PWGR, in our view.
Intra-state to aid growth; Consultancy and Telecom to grow strongly
Intra-state transmission opportunity is ~1.5-2x the size of inter-state transmission in India. However, states have been reluctant to offer intra-state projects on TBCB due to healthy regulated returns. Unlike their DISCOMs, state TRANSCOs are not cash starved. PWGR expects a pick-up in TBCB activity from states like Jharkhand, UP, Telangana and Tamil Nadu. Its JV proposal with UP is also in the final stages. Consultancy and Telecom businesses are expected to grow at a healthy 15-20% over the next few years. Success in the telecom towers business (pilot running successfully over the past year) will support growth in Telecom.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.