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Power Grid Corp’s (PGCIL) 1QFY24 adj. PAT came in at INR 39bn (+6% YoY, -9% QoQ), 7% below JMFe. Net revenue for the quarter remained flat YoY at INR 110bn (-11% JMFe) led by 1% / 11% YoY growth in transmission / telecom revenue and 46% de-growth in the consultancy business. PGCIL reported an EBITDA of INR 97bn (+5% YoY, -11% JMFe), supported by lower transmission charges during the quarter. The company achieved capex of INR 15bn and capitalisation of INR 16bn during 1QFY24 and has guided for a capex of INR 88bn and capitalisation of ~INR 100-110bn in FY24. The BOD has recommended an issue of bonus shares in the ratio of 1:3 subject to shareholder approval. JM View – With increasing visibility on transmission capex on the back of Renewable (RE) integration and healthy TBCB pipeline, we believe that PGCIL is poised to command higher market share (50%+) going forward as compared to its long term average of c.40%. 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 280 (INR 260 earlier), implying 11% upside.

* 1QFY24 performance: PGCIL’s 1QFY24 PAT stood at INR 39bn, (+6% YoY) led by 11% miss on Revenue and EBITDA. There was also an impact of prior period items worth INR c.4.9bn in 1QFY23 which further led to a miss on our PAT estimates. Trasmission segment witnessed a modest growth of 1% YoY whereas consultancy business de-grew by 46% on account of large projects for government in North East coming to an end which led to tapering down of revenues. Telecom segment continues to outperform with 15% YoY growth. Core RoE for 1QFY24 stood at 17.4% vs. 16.6% in 1QFY23.

* Business outlook: The transmission opportunities up to 2032 provide a capex visibility of ~INR 1,710bn for PGCIL, which includes ISTS projects worth INR 1,165bn, intra-state transmission system projects worth INR 370bn, cross-border interconnection projects worth INR 100bn and international projects worth INR 75bn. Along with transmission capex, PGCIL also estimates INR 170bn outlay in other businesses such as solar generation, smart metering and data centre over the next 7-8 years. PGCIL has INR 487bn of works in hand including INR 128bn of TBCB projects as of 30th Jun’23.

* TBCB projects gaining momentum: PGCIL won two TBCB projects in 1QFY24. Transmission scheme for Solar Energy in Ananthapuram (2.5GW) and Kurnool (1GW) which will be used for RE power integration. The 2nd project is a transmission system for evacuation of RE power from REZ in Rajasthan (20GW). These projects have a levellised tariff of INR 3.4bn. Of the overall TBCB projects expected to come on-stream, bids for INR 250bn have been concluded, INR 550bn worth of projects are under bidding and another INR 810bn worth of projects are likely to be floated for bidding over the next 1-1.5 years. PGCIL is targeting 50%+ market share in the same.

* Overseas transmission opportunity: PGCIL is currently exploring two overseas transmission

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