Hold Power Grid Ltd For Target Rs.235 - ICICI Direct
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Stable performance…
About the stock: Powergrid is India’s largest power transmission utility with transmission lines of 172662 ckt km and 485750 MVA of transformation capacity
* Powergrid transmits about 50% of the 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
Q2FY23 Results: As expected, Powergrid reported muted Q2FY23 revenues. As per our expectations, growth rates in the transmission business have settled in the single digit domain given peak of transmission capex is behind us. Going ahead, we believe the roadmap in terms of getting new projects in the renewable segment and likely diversification in the distribution business will set the tone for growth trajectory.
* Reported revenues came in at | 10655.7 crore vs. our estimate of | 10580.3 crore, implying growth of 7% YoY. Transmission segment revenues came in at | 10411.8 crore, up 7% YoY (vs. our estimate of | 10182.4 crore)
* Capitalisation of | 1788 crore in Q2FY23 with capex of | 1737 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, 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 | 235 at 1.9x FY24E book value.
Key triggers for future price performance:
* 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 | 196/share, (1.4x FY24E book value)
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