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Stable performance yet again

Power Grid Corporation of India (PGCIL) has reported another stable quarter of growth in Q2FY23. On a consolidated basis, reported revenue grew 8.6% YoY to Rs111.5bn, while EBITDA was up 3.5% to Rs94.3bn and reported PAT was up 8.1% at Rs36.5bn. Adjusted PAT at Rs34.1bn was up 3.7% YoY. Consolidated capex for the quarter stood at Rs17bn and capitalisation was Rs20bn. PGCIL also took a one-time charge of Rs1.3bn as differential between the present value of instalments (on conversion of overdue receivables as per GoI scheme) and the overdue amount. While opportunities in transmission segment are expected to pick up only by FY23- end, PGCIL intends to engage in multiple large-scale opportunities to deploy its capital, including smart metering and distribution infrastructure, data centres, solar power generation (on own land) and battery storage among others. As per the ISTS rolling plan of CTUIL, total estimated investment in transmission sector over FY23- FY27 is Rs1.24trn, of which Rs468bn has been planned over FY23-FY24. PGCIL has announced an interim dividend of Rs5/sh. Maintain ADD.

* Stable quarterly performance: In Q2FY23, on standalone basis, reported revenue was up 7.3% YoY at Rs106.6bn, EBITDA was up 2% at Rs89.6bn and reported PAT was up 9.4% YoY at Rs36.5bn. Adjusted PAT was up 7.3% at Rs34.1bn. On consolidated basis, reported revenue grew 8.6% YoY to Rs111.5bn, while EBITDA was up 3.5% to Rs94.3bn and reported PAT increased 8.1% to Rs36.5bn. Adjusted PAT at Rs34.1bn was up 3.7% YoY. Consolidated revenue growth was aided by 8.6% growth in transmission income at Rs109bn and 7.4% growth in telecom income at Rs2bn. However, consultancy income declined 25.6% YoY to Rs1.4bn and other income also declined 19.7% YoY to Rs2bn, mainly due to lower LPS. Interest expense increased 16.1% YoY to Rs21.9bn. PGCIL capitalised assets worth Rs19.7bn and incurred capex of Rs17.2bn at consolidated level. For FY23, capex / commissioning target is Rs80bn / Rs100bn. FY23 asset monetisation target is Rs75bn (Rs68.6bn is pending), majority of which is likely to be executed in H2FY23.

* Receivables higher but expected to normalise: Receivables have increased to Rs141bn (Rs95bn at FY22-end), but we believe this will normalise by FY23-end. As per the recent LPS rules, PGCIL has also taken a charge of Rs1.27bn, which was the fair value difference between the present value of instalments (to be paid over a maximum of 48 months) and the overdue amount rescheduled.

* Valuations and dividend outlook: We maintain ADD on the stock with DCF-based target price of Rs242/sh. Over FY23E-FY28E, we have factored in capex of Rs677bn and capitalisation of Rs810bn (Rs230bn works-in-hand, Rs290bn RTM projects awarded, Rs290bn potential TBCB wins {50% of the estimated Rs600bn project pipeline over the next three years}). However, we have not included capex on other businesses, including smart metering, as we await further clarity on its revenue models. The stock is currently trading at FY24E P/E of 10x and P/B of 1.8x, with a dividend yield of 6.7%. Over FY23E-FY24E, we expect PGCIL to pay out ~Rs30/sh as dividend cumulatively. It has announced an interim dividend of Rs5/sh with Q2FY23 result.

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