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In-line quarter; renewables continue to boost capex

Power Grid Corp’s (PGCIL) 4QFY23 adj. PAT came in at INR 43bn (-3% YoY, +27% QoQ), 5% ahead of JMFe. Net revenue for the quarter increased by 15% YoY to INR 123bn (+3% JMFe) led by 17% / 20% YoY growth in transmission / telecom revenue. PGCIL reported an EBITDA of INR 109bn (+17% YoY, +4% JMFe), benefiting from lower-than-expected transmission charges during the quarter. The company achieved capex of INR 92bn and capitalisation of INR 74bn during FY23 and guided for a capex of INR 88bn and capitalisation of ~INR 100-110bn in FY24.

JM View – With increasing visibility on transmission capex and moderating competitive intensity, we estimate that PGCIL’s capex will rise to INR 120-130bn annually by FY25 (vs. INR 88bn in FY23). We remain long-term positive on PGCIL given healthy dividends (INR 14.75/sh each in FY23 and FY22) and stable earnings. We maintain our BUY rating and have marginally tweaked our estimates upwards to arrive at an SOTP-based TP of INR 260 (INR 255 earlier), implying 11% upside

* In-line quarter: PGCIL’s 4QFY23 reported PAT at INR 43bn was in line with JMFe (+2% YoY) led by a) 4%/3% YoY growth in EBITDA/revenue primarily led by 17%/20% YoY growth in Transmission/telecom revenue and lower-than-expected transmission charges. Core RoE for 4QFY23 stood at 19% vs. 15% in 4QFY22.

* Sector outlook: The transmission opportunities up to 2030 provide a capex visibility of ~INR 4,000bn, which includes ISTS projects worth INR 1,900bn, intra-state transmission system projects worth INR 1,960bn and cross-border interconnection projects worth INR 200bn. PGCIL has INR 500bn of works in hand including INR 130bn of TBCB projects. The management, in the analyst/investor meet, highlighted that out of the INR 1,900bn estimated opportunity of ISTS for integrating 500GW renewable projects by 2030, tenders of INR 310bn are under bidding.

* Overseas transmission opportunity: PGCIL is currently exploring two overseas transmission opportunities - one in Kenya and the other in Tanzania. The project size in Kenya is around USD 250mn with 40:60 stake of PGCIL and Africa50. The company has received in-principle approval and submitted a definitive proposal for the same. The project size for the Tanzania order is around USD 300mn and is in the early stages.

* Healthy dividend payout: The company declared an interim dividend of INR 4.75/sh in addition to 1 st and 2nd interim dividend of INR 5/sh each declared earlier taking the total dividend to INR 14.75/sh (same as in FY22). Dividend payout as a percentage of PAT improved from 60% in FY22 to 67% in FY23. The management has guided for a similar dividend payout over the coming years.

* Receivables: Receivables outstanding for more than 45 days, which stood at INR 60.4bn in 3QFY23, has drastically reduced to INR 29.7bn as on 4QFY23 mainly due to implementation of LPS Rules, as well as receipt of money pending from two earlier orders.

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