Power Grid
BSE SENSEX
40,345
S&P CNX
11,913
12 November 2019
Update | Sector: Utilities
CMP: INR192
TP: INR244 (+27%)
Buy
Growth in transmission to continue
Asset monetization on cards, but clarity awaited
We attended Power Grid (PWGR)’s analyst meet. Below are the key takeaways:
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials Snapshot (INR b)
Y/E Mar
Net Sales
EBITDA
PAT
EPS (INR)
Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2019 2020E 2021E
325.3
276.9
100.3
19.2
16.0
112.9
17.7
9.3
10.0
1.7
388.1 422.4
349.3 381.0
106.3 119.2
20.3
5.9
17.0
7.9
9.4
1.5
22.8
12.2
17.2
8.4
8.4
1.4
Shareholding pattern (%)
As On
Sep-19 Jun-19 Sep-18
Promoter
55.4
55.4
56.3
DII
FII
Others
12.5
27.8
4.4
12.2
28.0
4.5
15.4
23.6
4.7
Transmission sector to grow 8-9% over the next 10 years
PWGR IN
5,232
1002.9 / 14
216 / 173
-10/-1/-15
1305
44.6
PWGR has noted that India’s current low per capita electricity consumption
(1/3rd of the world average) and focus on renewable energy (RE) investment
will necessitate growth in transmission works.
INR478b worth transmission projects corresponding to ~70GW of RE capacities
have been identified for awarding. Of this, INR147b has been allocated to
regulated tariff mechanism (RTM) and tariff-based competitive bidding (TBCB)
projects, while the balance is up for allocation.
From a longer-term perspective, company believes that India’s vision to reach
450GW of RE capacity by 2030 (from est. 175GW in 2022) would necessitate
incremental investments of INR2.8t within transmission. By and large, PWGR
expects the transmission sector to grow at 8-9% over the next 10 years.
Capitalization run-rate at ~INR200b for FY20/FY21
125.4 139.4
PWGR has claimed that a few right of way (RoW) issues related to its Raigarh-
Pugalur project have been resolved; it also expects Phase 1 of the project
(INR90b) to be completed in Feb’20 with subsequent commissioning in Mar’20.
We note that PWGR had set up capitalization target of INR200-250b for FY20
and much of it is dependent on the commissioning of this project.
Company has noted that issues pertaining to RoW have heightened due to
forest clearances, issues in obtaining RoW near city areas and greater
awareness among locals of their rights. However, it has not witnessed a severe
impact for its under-execution projects. PWGR expects capitalization of
INR200-220b for FY21.
FII Includes depository receipts
Stock Performance (1-year)
Power Grid Corpn
Sensex - Rebased
235
220
205
190
175
Asset monetization in the works
PWGR is looking to monetize assets through the InvIT mode (the government
has set a target to raise INR100b from InvITs in FY20) and has taken an in-
principle approval from the board. Company plans to use the proceeds from
this monetization primarily for investing in upcoming projects. In case of lower-
than-expected investment opportunities, the available excess cash will be paid
out as dividends.
PWGR will also be the project and investment manager of this InvIT and earn a
recurring fee income on it. Company does not intend to have more than 15%
holding (minimum sponsor holding required) in the InvIT.
The InvIT route is more suited for PWGR’s TBCB projects as these are housed in
separate SPVs and don’t have any stamp duty implications. TBCB projects
though have a lock-in period and the company can currently transfer INR17b of
projects (another INR44b to be eligible by Jun’20).
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com); +91 22 61291572
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Power Grid
To transfer RTM projects to a SPV, company will need CERC’s approval. PWGR
plans to ensure a neutral tariff structure post the transaction, and therefore,
may look at arranging back-to-back funding for its RTM projects.
We await details on the transfer of such assets and their structure. Company has
noted that the valuation for asset transfer has not yet been decided. Nuances in
case of transfer of RTM assets are also still being worked out.
Other key highlights
Overdue (>45 days) stood at INR34.4b. Major dues are from states such as
Telangana, Uttar Pradesh, J&K, Andhra Pradesh and Rajasthan.
PWGR is exploring transmission projects under PPP mode in Kenya. In addition,
it is also looking to build an Indo-Nepal line (Gorakhpur- Bhutwal) through a
50:50 JV with Nepal.
Company is keen on participating in intra-state works through JVs. It has formed
a JV with Assam for the same.
PWGR has also formed a JV with NTPC for setting up National Electricity
Distribution Company Limited (NEDCL) to undertake distribution of electricity
and related activities.
Strong business and attractive valuations; Maintain Buy
Investment in renewable energy and growth in power demand should drive the
need for transmission works. INR480b of projects are envisaged to be awarded for
renewable integration. PWGR’s recent award wins (won 7 out of 13 projects in YTD
FY20) highlight its competitive positioning to win such projects as they arrive. We
note that capitalization run-rate for FY20 may still be at risk if the Raigarh-Pugalur
project gets deferred. Further, the nature and clarity of the company’s asset
monetization program needs to be watched. However, PWGR’s stock trades at just
1.4x/1.2x FY21/FY22E P/BV for steady long-term growth and under-penetrated
market. Maintain
Buy
with DCF-based TP of INR244/share.
12 November 2019
2
 Motilal Oswal Financial Services
Power Grid
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Expenditure
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
PBT before EO
EO income (expense)
PBT after EO
Tax
Rate (%)
Reported PAT
Share of JVs and asso.
Adjusted PAT
Change (%)
2016
206,521
17.0
23,940
182,581
88.4
61,818
50,862
4,663
74,563
0
74,563
16,129
21.6
58,434
58,434
14.8
2017
257,039
24.5
30,467
226,572
88.1
77,223
62,036
5,838
93,153
0
93,153
20,063
21.5
73,090
1,418
74,507
27.5
2018
299,415
16.5
36,296
263,119
87.9
92,310
73,241
4,891
102,459
0
102,459
21,955
21.4
80,504
1,479
86,513
16.1
2019
325,323
8.7
48,386
276,937
85.1
105,410
87,366
6,022
90,184
0
90,184
-8,864
-9.8
99,047
1,288
100,335
16.0
2020E
388,138
19.3
38,835
349,303
90.0
123,625
94,843
479
131,314
0
131,314
26,444
20.1
104,870
1,384
106,254
5.9
(INR Million)
2021E
422,383
8.8
41,377
381,006
90.2
134,507
99,881
933
147,551
0
147,551
29,654
20.1
117,897
1,336
119,233
12.2
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Rev. & tax
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Other Assets
Inventory
Debtors
Cash & Bank Balance
Other Current Assets
Loans & Advances
Other Liabilities
Net Current Assets
Application of Funds
E: MOFSL Estimates
2016
52,316
387,383
439,699
1,085,449
82,169
1,607,318
1,214,908
63,965
1,150,942
354,021
9,185
278,769
109,163
27,395
22,434
82,260
37,518
185,600
93,170
1,607,318
2017
52,316
446,339
498,655
1,189,879
74,184
1,762,718
1,519,616
142,837
1,376,779
296,750
11,650
271,272
94,963
31,319
33,536
71,952
39,501
193,732
77,539
1,762,718
2018
52,316
491,944
544,260
1,315,030
74,509
1,933,798
1,798,900
236,914
1,561,986
289,496
12,240
279,548
97,683
36,400
21,890
85,246
38,329
209,468
70,080
1,933,801
2019
52,316
538,568
590,884
1,463,764
194,755
2,249,403
2,072,146
344,750
1,727,396
262,311
12,964
470,904
126,472
47,281
43,367
154,238
99,547
224,173
246,731
2,249,402
2020E
52,316
603,708
656,024
1,469,693
194,755
2,320,472
2,311,045
468,375
1,842,670
188,816
12,964
461,687
70,509
43,324
77,715
162,668
107,471
192,771
268,916
2,313,366
(INR Million)
2021E
52,316
676,843
729,159
1,491,106
194,755
2,415,019
2,540,147
602,882
1,937,265
153,718
12,964
510,731
82,762
52,959
81,887
181,954
111,169
206,766
303,965
2,407,913
12 November 2019
3
 Motilal Oswal Financial Services
Power Grid
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Growth (%)
Cash EPS
Book Value
DPS
Div.Payout (incl. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Current Liabilities (Days)
Asset Turnover (x)
Leverage Ratio
Net Debt/EBITDA
Debt/Equity (x)
2016
11.17
14.8
23.0
84.0
2.1
0.0
2017E
14.24
27.5
29.0
95.3
2.5
21.0
2018E
16.54
16.1
34.2
104.0
5.8
44.2
2019E
19.2
16.0
39.3
112.9
8.6
54.5
2020E
20.3
5.9
43.9
125.4
6.6
40.0
2021E
22.8
12.2
48.5
139.4
7.3
40.0
17.2
8.3
11.3
2.3
1.1
13.5
6.6
9.5
2.0
1.3
11.6
5.6
8.7
1.8
3.0
10.0
4.9
8.8
1.7
4.5
9.4
4.4
6.9
1.5
3.4
8.4
4.0
6.3
1.4
3.8
14.2
6.5
8.6
48
94
160
0.2
15.9
7.2
8.9
44
70
142
0.2
16.6
7.5
8.9
44
64
136
0.2
17.7
9.3
10.6
53
81
143
0.2
17.0
7.9
9.1
41
46
127
0.2
17.2
8.4
9.4
46
49
122
0.2
5.8
2.5
2016
75,597
61,818
50,862
-4,730
-19,310
-14,156
150,082
#REF!
-216,795
1,030
-215,765
0
0
117,171
-47,584
-13,379
56,208
-9,475
31,909
22,434
5.1
2.4
2017E
94,369
77,223
62,036
-3,264
4,495
-18,714
216,144
#REF!
-239,244
495
-238,749
0
0
112,506
-57,000
-15,921
39,586
16,980
16,556
33,536
4.9
2.4
2018
103,938
92,310
73,241
-3,616
-16,181
-22,591
227,101
-261,799
4,784
-257,015
0
0
119,924
-70,480
-36,598
12,847
-17,067
38,957
21,890
5.1
2.5
2019
90,184
105,410
87,366
113,919
-155,175
8,864
250,566
-246,061
7,310
-238,751
0
0
148,734
-87,366
-54,244
7,124
18,939
21,890
40,830
4.0
2.2
2020E
131,314
123,625
94,843
-479
12,164
-26,444
335,023
-165,404
1,863
-163,541
0
0
5,929
-94,843
-41,113
-130,027
41,455
40,830
82,285
3.7
2.0
Cash Flow Statement
Y/E March
PBT before EO Items
Depreciation
Interest
Others
(Inc)/Dec in WC
Direct Taxes Paid
CF from Operations
(INR Million)
2021E
147,551
134,507
99,881
-933
-30,878
-29,654
320,474
(Inc)/Dec in FA
(Pur)/Sale of Investments
CF from Investments
Equity raised
Grants etc
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
-194,004
2,269
-191,735
0
0
21,413
-99,881
-46,099
-124,568
4,171
82,285
86,456
12 November 2019
4
 Motilal Oswal Financial Services
Power Grid
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
< - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30
days take appropriate measures to make the recommendation consistent with the investment rating legend.
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The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a
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Specific Disclosures
1 MOSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
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9 MOSL has not received any compensation or other benefits from third party in connection with the research report
10 MOSL has not engaged in market making activity for the subject company
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The associates of MOFSL may have:
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financial interest in the subject company
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actual/beneficial ownership of 1% or more securities in the subject company
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received compensation/other benefits from the subject company in the past 12 months
12 November 2019
5
 Motilal Oswal Financial Services
Power Grid
other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific
recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there
might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
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acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
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be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies)
discussed herein or act as an advisor or lender/borrower to such company(ies)
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received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
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used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this
report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This
may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at
an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures,
options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied,
is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is
provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The
Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and
the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform
or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is
already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the
views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or
published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any
locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or
licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose
possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be
liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not
to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses,
costs, damages,
expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai-
400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI:
ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration
No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.:
INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond,
NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered
through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk
Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk,
read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law
Tribunal, Mumbai Bench.
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