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Decent quarter; Outlook intact

Power Grid Corporation of India Limited is engaged primarily in the power transmission business. The Company’s segments include transmission, telecom and consultancy.

* Q4FY21 standalone revenue went up 2.5% YoY, led by growth across all verticals, viz. Transmission (+1.9% YoY), Consultancy (+1.4% YoY), and Telecom (+3.6% YoY).

* EBITDA improved 8.4% YoY, with margin expanding 480bps YoY aided by higher sales, but partially offset by higher staff costs. PAT for the quarter grew 10.5% YoY, further helped by higher other income and proportionately lower interest costs.

* Company announced bonus shares in the ratio of 1:3 – to be taken in the upcoming shareholders’ meeting for approval.

* Growth in power demand and effective cost control measures should drive performance going forward. We reiterate our BUY rating on the stock with a revised TP of Rs. 276 based on 1.7x FY23E BVPS.

Demand drives topline growth

Company’s revenue increased by 2.5% YoY to Rs. 9,942cr in Q4FY21 due to growing demand across businesses and operations. Transmission revenue recorded a 1.9%YoY growth to Rs 9,787cr owing to rise in electricity demand, while Consultancy revenue grew by 1.4% YoY to Rs. 177cr due to availability of newer projects. Telecom business revenue improved 3.6% YoY largely due to strong traction in data center as well as in the international long distance bandwidth businesses. Additionally the company has adopted latest technologies like application based patrolling, use of drones for patrolling transmission lines and PALMS portal which also helped drive the revenue.

Margins expands on account of effective cost control

Gross profit rose 9.7% YoY to Rs. 9,399cr, as gross margin improved 623bps YoY to 94.5%, on account of lower cost of sales. EBITDA grew to Rs. 8,747cr (+8.4% YoY), while EBITDA margin expanded 480bps YoY to 88.0%, benefitted by higher revenue but partially offset by higher employee benefit expenses as % of sales (6.6% vs. 5.1% in Q4FY20). Resultantly, PAT improved 10.5% YoY to Rs. 3,516cr further aided by lower finance costs, however offset by higher taxes.

Key highlights

* Company recently commissioned +320kV Voltage Source Convertor (VSC) based HVDC terminals for power transmission from Pugalur (Tamil Nadu) to Thrissur (Kerala) at an expected cost of about Rs. 5,000cr. Additionally, work is being carried out on the +800 kV HVDC project for power transfer of 6,000MW with an investment of nearly Rs. 16,600cr.

* In the telecom vertical, company added 98 new customers with ~99% Gram Panchayat connected and ~97% GPs and Block Head ready to service.

* During FY21, Consultancy vertical received 10 new orders in domestic market and 7 new orders in international market.

* First time since inception, the company plans to do a bonus share issue in the ratio 1:3 (post approval of shareholders).

Valuation

We expect the business to perform well in the short to medium term as the demand from transmission and telecom business will continue to grow. Increase in number of projects along with adoption of latest technologies by the management should help reduce costs and aid margin expansion. We continue to maintain a positive outlook and reiterate our BUY rating on the stock with a revised target price of Rs. 276 based on 1.7x FY23E BVPS.

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