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Steady quarter; capex upcycle continues

* Power Grid (PWGR)’s 2QFY25 reported standalone (SA) PAT was in line with our estimate at INR37.1b (-3% YoY). On a consolidated basis, reported PAT was flat YoY at INR37.9b. In the analyst meet, 1) FY25 capex guidance was increased marginally to INR200b (INR180b previously), 2) capex and capitalization guidance for FY26 was INR250-300b while capitalization for FY27 was guided at INR400b, 3) PWGR highlighted that assuming a ~50% win rate, it could secure INR1.92t in upcoming project bids under NEP 2032, in addition to its current INR1.43t order book, implying a minimum cumulative capex of INR3t by 2032. Of the current order book, ~32% is from RTM projects, where the company earns a healthy 15% ROE.

* Following 2QFY25 results, we moderate our FY25 PAT estimate marginally (-4%) due to 1H consolidated capitalization (INR40b), trailing previously provided guidance of INR140-150b. PWGR declared an interim dividend of INR4.50 per share for FY25. We are building in FY25 DPS of INR 12, which is expected to rise to INR13.5 by FY27.

* In the analyst meet, PWGR management highlighted a total capex potential of INR6.6t in Inter-State Transmission Systems, where PWGR holds a leading 50-60% market share. Management also highlighted six upcoming HVDC projects and three cross-border linkage projects (India-Bangladesh, IndiaMyanmar, and India-Sri Lanka), in which PWGR remains well placed to compete and execute. As such, we believe capex and capitalization should continue on an upward trajectory in the coming years. PWGR is trading at FY27 PB of 3x with a dividend yield of 4.3%, which we think is attractive. We reiterate our BUY rating on the stock with a TP of INR426.

Steady 2Q; in line with expectations

* PWGR reported SA revenue for 2QFY25 at INR102b (+5% YoY), 2% below our estimate of INR104b. EBITDA came in at INR87.8b (+3% YoY), ~4% below our est. of INR91.3b, impacted by a sharp rise in opex.

* Reported SA PAT was in line with our est. and stood at INR37.1b. Adjusted SA PAT of INR35b (+5% YoY) was 3% lower than our est. of INR36.2b. On a consolidated basis, reported PAT came in at INR37.9b (flat YoY) and EBITDA was up 2% YoY at INR99b.

* The transmission segment accounted for 97.7% of consol. EBIT of INR69b, whereas the telecom segment contributed 2%, with its EBIT rising to INR1.4b (+33% YoY, +87% QoQ).

* In 2QFY25, its JVs reported a loss of INR1,046m, compared to a profit of INR290m in 1QFY25.

* In 1HFY25, on a YoY basis, net sales grew 1.7% to INR203b, EBITDA was flat at INR175b but APAT fell 2.3% to INR69.6. In 2HFY25, we expect net sales/EBITDA to increase 3.1%/3.5% YoY but PAT to fall 9% YoY.

* In 1HFY25, SA capex was INR34b, while consol. capex was INR100b.

* Other key details:

* During the quarter, net movement in regulatory deferral account balances was positive INR2.4b.

* The board declared the first interim dividend of INR4.50/share for FY25.

Highlights of the 2QFY25 performance:

* PWGR emerged as the L1 bidder for 8 ISTS TBCB projects during 2QFY25 (levelized tariff: INR54.7b).

* Project Execution and Financial Performance: ? Capex stood at INR53.8b on a consolidated basis and INR17.2b on a standalone basis.

* The company capitalized INR16.8b on a consolidated basis and INR8.2b on a standalone basis.

* Added 405ckm of transmission lines and 8,515MVA of transformation capacity.

* The transmission system had an availability rate of 99.8%, reflecting high operational efficiency.

* The reliability rate was 0.17 trippings per line.

* On a standalone basis, the average borrowing cost was 7.73%.

* Telecom Division Highlights:

* The telecom division successfully added 13 new customers during the quarter and reported an income of INR2.6b.

Valuation and view

We derive the TP of INR426 for PWGR based on Dec’26E EBITDA and an EV/EBITDA multiple of 11x, which we think is reasonable, though at the higher end of the historical range.

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