11 August 2020
1QFY21 Results Update | Sector: Utilities
Power Grid
Estimate change
TP change
Rating change
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CMP: INR177
TP: INR221 (+25%)
Buy
Impact of rebate flows through
Valuations do not price any growth benefits; Maintain Buy
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
PWGR IN
5,232
924.9 / 12.4
213 / 130
-3/0/-15
2062
Power Grid (PWGR)’s result highlights the impact of rebate (INR10.75b),
with reported S/A PAT declining 18.5% YoY to INR28.1b. Adjusted for the
same and prior-period revenue, PAT was up 21% YoY.
INR234b worth of awards would be bid out under various schemes, but we
expect some delays. In this context, a declining order book does present the
risk of growth slowdown. However, valuations at 1.3x FY22E P/BV and ~9%
FY22E dividend yield remain attractive for a company with steady RoEs of
~17%.
Maintain Buy,
with DCF-based TP of INR221/sh.
Reported S/A PAT was down 18.5% YoY at INR19.8b on account of an
INR10.75b rebate (our est.: INR 20b, including the rebate impact). Not
accounting for the rebate and prior-period sales, PAT would have been up
21% YoY at ~INR28b, partly aided by other income. Other income was up
49% YoY, aided by higher late payment surcharge (INR2.65b v/s INR0.6b for
the previous year).
We note the impact of rebate was baked in our numbers
v/s reported by PWGR as an exception, which led to the apparent difference
on an adjusted basis.
Profit in the
Telecom
segment declined 6% YoY at ~INR1b, and profitability
for the
Consultancy
segment decreased 61%YoY at INR0.2b. Profit from
TBCB subs was largely flat at INR0.8b.
Capitalization stood at INR11.8b, while capex was at INR19.1b.
PWGR has maintained its FY21 capex and capitalization targets of INR105b
and INR200–250b, respectively. As per the co., it plans to commission
Bipole-I of Raigarh Pugalur in the current quarter.
Receivables increased to INR8.2b in Jun’20 (from INR4.9b in Mar’20).
Conversely, they reduced to INR7.5b in Jul’20. Collection efficiency
increased June onward and came in at >100% for June and July. INR12.4b
has been received under the Atmanirbhar scheme.
Rebate impacts profitability
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
EBITDA
Adj. PAT
EBITDA Margin (%)
Cons. Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div. Yield (%)
FCF Yield (%)
8.4
1.4
6.7
5.6
21.6
7.7
1.4
6.1
7.8
29.1
7.3
1.3
5.5
8.8
28.1
2.2
17.9
7.9
54.1
1.9
18.2
8.3
67.6
1.7
18.0
8.8
66.7
394.3 406.3 435.1
346.2 365.3 391.8
110.6 120.9 127.4
87.8
21.1
10.2
89.9
23.1
9.3
90.0
24.4
5.4
123.7 130.9 139.6
Maintains capitalization and capex guidance for FY21
Declining capitalization could impact growth, but valuation remains
attractive
Shareholding pattern (%)
As On
Jun-20 Mar-20
Promoter
51.3
51.3
DII
18.3
16.7
FII
25.3
27.0
Others
5.0
5.0
FII Includes depository receipts
Jun-19
55.4
12.2
28.0
4.5
While the awarding of transmission schemes (~INR250b) under renewable
integration provides a good opportunity for PWGR to win new awards, our
checks have suggested certain challenges could defer their awarding. If new
orders do not come in, a declining order book could impact the pace of
growth in profitability.
However, subsequent lower capex (along with the removal of DDT) also
implies potential for higher dividends (FY22E div. yield of ~9%). Besides, the
longer term picture remains intact as investment in renewable energy and
growth in power demand would necessitate the need for transmission
works. Valuations at 1.3x FY22E P/BV remain attractive for a company with
steady RoEs of ~17% and do not capture any growth potential (EPS FY20–
22E: 7% CAGR). Maintain Buy, with DCF-based TP of INR221/sh.
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
13 February 2020
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