“BUY” This Maharatna Stock With A Target Price of Rs. 220 Says ICICI Direct

Q2FY22 results of Power Grid

According to the brokerage the company's "Reported revenues came in at Rs 9929.2 crore vs. our estimate of Rs 10028.5 crore, implying growth of 9.6% YoY. However, transmission segment revenues came in at Rs 9679.6 crore, up 7% However, PAT came in at Rs 3338.7 crore, below our estimate of Rs 3471.9 crore as reported other income fell short of our expectations. Power Grid has also shown capitalisation of Rs 13275 crore in H1FY22 with CAPEX of Rs 3685 crore."

ICICI Direct claims that "PowerGrid reported an in line set of Q2FY22 revenues. As per our expectations, growth rates in the transmission business have settled in the single-digit domain given peak of transmission CAPEX is behind us."

For future price performance, the brokerage has also placed a key trigger on the stock by saying that "Higher than expected IRRs in the competitively bid tariff based competitive bids projects can rerate the stock. Diversification into smart metering and T&D infrastructure business."

• The company capitalised assets to the tune of Rs 7633 crore and Rs 13275 crore as on Q2FY22 and H1FY22 basis, respectively. The capitalisation target for FY23E is expected at Rs 12000-15000 crore.
• The CAPEX incurred during H1FY22 was at Rs 3695 crore on a standalone basis. For FY22, the company expects a CAPEX of Rs 7500 crore. For FY23E, the CAPEX will be in the range of Rs 7500-10000 crore. The company till YTD has done 60% of the yearly capex target.
• Gross block as of Q2FY22 was at Rs 243647 crore while debt was at Rs 135012 crore.
• Total business opportunity was at Rs 26500 crore worth of projects, which will come up for bidding.
• Overdue >45 days were at Rs 2705 crore vs. Rs 6145 crore in Q1YF21.
• Standalone and consolidated CWIP were at Rs 11195 crore and ~Rs 15000 crore, respectively.
• For FY23, the company expects Rs 7000-7500 crore worth of TBCB projects to be transferred to InVIT whereas the same will be Rs 15000 crore by FY24- 25 each.
• The company plans to foray into the smart metering infra business where it will invest in the smart meter asset development business as floated by the respective state utility. Power Grid aspires to be present across the value chain wherein the company will set up the required infra and manage the O&M business as well. Power Grid plans to invest Rs 10000-12000 crore over the next four years. On the other hand, the company plans to foray into improving state T&D infra and invest another Rs 10000-12000 crore over the next four years.
• The company has floated a separate telecom subsidiary wherein it will foray into the data centre business by leveraging on the land bank available at various substations.

Buy Power Grid With A Target Price of Rs. 220

ICICI Direct has claimed in its research report that "Within the power sector, Power Grid has been a steady performer due to strong asset addition in FY16-20. Now with relatively small size of renewable projects growth rate will taper down for the stock, which will be cushioned by a decent dividend yield. Maintain BUY rating on the stock. We value the stock at Rs. 220 i.e. 1.9x FY23E book value."

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.