Valuations at 1.5x FY22e P/BV and ~7% FY22e dividend yield stay engaging for an organization with regular RoEs of ~17%. Maintain Buy, with DCF-based TP of Rs 248/sh.
Power Grid (PWGR)’s consequence highlights sturdy underlying numbers for its Transmission section—implying ~18% y-o-y development. Reported S/A PAT was additional aided by greater different earnings, leading to a 24% y-o-y rise. PWGR has received Rs 90-100 bn of awards in Q3, which is a constructive, given a declining order e book. Valuations at 1.5x FY22e P/BV and ~7% FY22e dividend yield stay engaging for an organization with regular RoEs of ~17%. Maintain Buy, with DCF-based TP of Rs 248/sh.
Profit boosted by greater different earnings
PWGR’s adj. S/A PAT was up 25.4% y/y to Rs 33 bn (16% forward of our est.) on account of upper different earnings. Even adjusted for a similar, underlying transmission numbers are sturdy and indicate ~18% y-o-y development, in our view. Other earnings was up 25.7% y-o-y to Rs 6.4 bn. This was led by greater late cost surcharge earnings and better dividends from subsidiaries.
Profitability within the Telecom section declined 16% y-o-y to Rs 0.9 bn, and for the Consultancy section, it fell 38% y-o-y to Rs 0.4 bn. Capitalisation for the quarter stood at Rs 6.8 bn, whereas capex was at Rs 29.4 bn on the group degree.
Management commentary highlights
PWGR famous billing realisation improved and stood at 95.7% for 9M. Receivables additionally declined to 63 days on the finish of Q3 (v/s 69 days in Q2FY21 and 86 days in Q1FY21). The co. plans to cut back this to 50–55 days. PWGR has filed the draft situation of InvIT and is awaiting SEBI clearance for a similar. The co. plans to launch the problem by the tip of March.
Decline in capitalisation might impression development, however valuations engaging
The latest awarding of Rs 90–100 bn offers some respite to a declining order e book. While the awarding of transmission schemes underneath renewable integration presents an excellent alternative for PWGR to win new awards, our checks counsel continued challenges, which might result in the deferment of awarding. If new orders don’t proceed to return in, a declining order e book might impression the tempo of development in profitability.
However, subsequently decrease capex (together with the removing of DDT) additionally implies potential for greater dividends (FY22e div. yield of ~7%). Besides, the long run image stays intact as funding in renewable power and development in energy demand would necessitate the necessity for transmission works.
Valuation at 1.5x FY22e P/BV stays engaging for an organization with regular RoEs of ~17% and doesn’t seize any development potential (EPS FY20–23e: 9% CAGR). Maintain Buy.