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Buy This Maharatna Stock, Shares Can Jump As Much As 30%

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Broking firm Sharekhan is bullish on the stock of PowerGrid and has recommended buying the stock for near 30% gains from the current levels. The brokerage has set a target price of Rs 265 on the stock of the Maharatna company. PowerGrid is a Maharatna Company, whose stock has hit a 52-week high of Rs 248 on the NSE and a low of Rs 180.

 

Focus on non-transmission opportunities

Focus on non-transmission opportunities

According to Sharekhan, to help diversify earnings and create long-term value, Power Grid has established a wholly owned subsidiary PowerGrid Energy Services Limited to explore various non-transmission business opportunities like energy management, smart meters, smart grid, energy storage.

Strong dividend yields

Strong dividend yields

Recently media reports indicated that Power Ministry has rejected a proposal wherein Power Grid Corporation was to buy Power Finance Corporation's (PFC) 52.6% stake in REC Limited.

"This has removed an overhang on Power Grid as the acquisition would have required Power Grid to pay Rs. 13,013 crore (based on REC's current market capitalization) in unrelated business of power finance. This coupled with the FY23 asset monetization target of Rs. 6,600 crore makes strong case for sustained higher dividend payout (Power Grid has consistently increase dividend payout to 60% in FY22 versus only 36% in FY18) and dividend yield of 6-7%," the brokerage has said.

Buy Power Grid with an unchanged price target of Rs 265
 

Buy Power Grid with an unchanged price target of Rs 265

Power Grid has a robust project pipeline worth Rs. 26,000 crore (excluding the Leh-Kaithal project worth Rs. 26,000 crore) and has capitalised Rs. 20,695 crore in FY22, which provides earnings visibility for 2-3 years. We thus expect an 11% CAGR in PAT over FY2022-FY2024E and RoE of ~19% in FY24E. We maintain a Buy on Power Grid with an unchanged price target of Rs. 265, as valuation of 1.6x FY24E P/BV seems attractive considering decent growth outlook, healthy RoE and dividend yield of 6-7%. Further, monetisation of transmission assets could help improve dividend payout given low FY23 capex guidance of Rs. 8,000 crore.

Capacity expansion to drive core transmission business

Capacity expansion to drive core transmission business

According to Sharekhan, the government's aim to expand India's renewable power capacity to 500GW by 2030 (versus only 163 GW currently) will help Power Grid in playing a pivotal role for grid integration of various renewable energy zones in India by implementing high-capacity Green Energy Corridors.

"This would increase capex in transmission projects and generate new bids. The long-term growth outlook for the company is strong as the total work in hand for Q1FY23 was Rs. 52,000 crore versus Rs. 35,100 crore in Q1FY22. The CTUIL rolling plan envisages robust investment upto Rs. 1,24,148 crore in the ISTS over FY23-27. The management gave muted capex plan of Rs. 8,000 crore for FY23 but we expect strong pickup in capex spends from FY24 given large investment opportunity in power transmission led by capex for augment RE capacity," the brokerage has said.

Key Risks for the stock

Key Risks for the stock

According to Sharekhan, slower-than-expected capitalisation of projects and inability to win new projects under tariff-based competitive bidding route. The shares of PowerGrid Corporation were last seen trading at Rs 212 on the NSE. It's important to note that markets have become exceedingly volatile and some caution is advised when investing.

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