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Power Grid reports steady results in Q2

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

* Q2FY22 standalone revenue rose 9.6% YoY on the back of strong growth in Consultancy business (+73.4% YoY) and steady performance in Transmission (+7.3% YoY) and Telecom (+0.4% YoY) businesses.

* EBITDA grew 10.2% YoY, as EBITDA margin expanded 50bps to 88.5% on lower operating costs. Adj. PAT grew 7.0% YoY to Rs. 3,338cr.

* Discussions currently underway with several states for deployment of smart meters and modernization related infrastructure works.

* Transmission business will continue to see steady growth on the back of strong underlying transmission numbers, expected to further benefit from high surcharge income. Telecom and Consultancy businesses also continued to perform. With promising outlook, we reiterate our BUY rating with a revised TP of Rs. 212 based on 1.7x FY23E BVPS.

Topline rises on all-round growth across businesses

During Q2FY22, standalone revenue grew 9.6% YoY to Rs. 9,929cr helped by growing demand across businesses. Revenue from Transmission business came in at Rs. 9,698cr (+7.3% YoY, +0.1% QoQ) owing to steady rise in demand for electricity, while Consultancy revenue grew by 73.4% YoY to Rs. 168cr (+23.3% QoQ) supported by growth in newer projects. Telecom business revenue increased 60.7% sequentially, however remained flat on YoY basis at Rs. 191cr. EBITDA rose 10.2% YoY to Rs. 8,785cr, with EBITDA margin improving 50bps to 88.5% owing to lower operational costs incurred during the quarter. Adjusting for exceptional items, PAT improved 7.0% YoY to Rs. 3,338cr (+14.5% QoQ).

Key highlights

* During Q2FY22, realisations improved drastically with states’ outstanding dues declining to Rs. 4,953cr, as against Rs. 7,080cr in Q1FY22.

* FY22 capex spending guided at Rs. 7,500cr.

* Current development pipeline stands at Rs. 26,500cr, including ongoing projects of Rs. 10,300cr, new projects of Rs. 3,400cr and another Rs. 13,800cr worth of projects under tariff-based competitive bidding (TBCB).

* Company is also exploring investment opportunities in Smart Metering and Distribution Infrastructure Augmentation worth ~Rs. 1.5lac crore each.

Power Grid to foray into data center and energy storage businesses

Company’s move to transfer its telecom business (POWERTEL) to a wholly-owned subsidiary remains on track and is expected to be completed by FY22-end. It is also venturing into international long distance (ILD) bandwidth and data center businesses which will form part of the telecom subsidiary. Separately, leveraging its strong expertise in transmission business, the company is said to be exploring opportunities in the battery storage space and will position itself as a Battery Energy Storage System (BESS) developer.

Valuation

Transmission business will continue to perform well in the coming quarters with the jumpstart in economic activities. Company has several ongoing projects progressing in a timely manner, as it continues to be the fastest growing utility in Asia. Foraying into the lucrative data center and energy storage businesses can open up further growth avenues for the company in the long-term. Maintaining a positive outlook, we reiterate our BUY rating on the stock with a revised TP of Rs. 212 based on 1.7x FY23E BVPS.

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