Hold Power Grid Corporation Ltd For Target Rs.237 - ICICI Direct
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Stable performance
About the stock: Powergrid is India’s largest power transmission utility with transmission lines of 174113 ckt km and 499360 MVA of transformation capacity.
* Powergrid transmits about 45% of total power generated in India on its transmission network
* It also undertakes transmission related consultancy to more than 150 domestic clients and owns & operates 71673 km of telecom network
Q4FY23 Results: Core transmission income above estimates.
* Revenue from operations for the quarter increased 12.5% YoY to | 11494.9 crore, which was higher than our estimate of | 10876.3 crore. From a segmental perspective, core transmission revenues surprised positively by growing 15% YoY at | 11502.3 crore vs. our estimate of | 10503.4 crore. Consultancy income was at | 208.8 crore, higher than our estimates as well. On a consolidated basis, revenues grew 14.8% at | 12263.7 crore
* Capitalisation of | 7413 crore in FY23 with capex of | 9212 crore
What should investors do? Powergrid has been a steady performer on account of strong asset addition in FY16-20. With relatively small sizes of renewable projects, the growth rate will taper down for the stock supported by decent dividend yield but the same has been discounted while new business initiatives will take time to show results.
* We maintain HOLD rating on the stock
Target Price and Valuation: We value the stock at | 236 at 1.8x FY25E book value.
Key triggers for future price performance:
* Pick-up in T&D capex and diversification into smart metering and T&D infrastructure business
Alternate Stock Idea: In the power space, we are bullish on NTPC’s prospects
* Strong focus on green energy portfolio, capacity addition in base business with growth in regulated RoE. BUY with a target price of | 210/share, (1.3x FY25E book value)
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