MOSL: POWER GRID (Buy)-Underlying earnings growth remains strong-Valuations attractive
Power Grid: Underlying earnings growth remains strong; Valuations attractive; Maintain Buy
(pwgr IN, Mkt Cap USD16.1b, CMP INR207, TP INR287, 39% Upside, Buy)
- Power Grid’s (PWGR) 4QFY18 standalone (S/A) reported PAT grew 4.6% YoY to INR20b (est. of INR23.9b). Factors such as wage hike, CSR expense of INR830m and a swing in adjustments pursuant to the final tariff orders of INR660m dragged earnings growth. Capitalization stood at INR80.9b in 4QFY18.
- For FY18, PAT grew 9.6% YoY to INR82.3b. This was lower than growth in regulated equity (estimated at ~17% YoY) due to (a) INR1.2b lower surcharge income, (b) ~INR2.3b in pay revision hit and (c) a swing in adjustments pursuant to the final tariff orders of INR2b. Adj. for these, PAT growth is reflective of growth in regulated equity.
- Capitalization run-rate remains strong at INR276b (v/s INR290b in FY17), continuing to outpace capex in FY18.
- PAT grew 10% YoY to INR81.9b in FY18. This is lower than S/A PAT due to inter-company adjustments with TBCB SPVs, dividend, etc.
- The trial for the use of towers for telecom services was successful. CEA has cleared the project. CERC has yet to approve it. PWGR is working with Railways for signaling work. The potential size of the business is INR800b. Modalities are being worked out with the government.
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.
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