Buy Power Grid Corporation of India Ltd For Target Rs.331 by Prabhudas Liladhar Capital Ltd
Healthy capex and order win
Q1FY27 consolidated Adj PAT (adjusted for prior-period income) stood at INR36bn, broadly flattish YoY and 6%/7% below our/Street estimates. In the post-result earnings call, PWGR highlighted that the lack of PAT growth was largely due to a one-off gain of INR2.3bn in Q1FY26. Adjusting for this, Q1FY27 PAT growth works out to ~6% YoY. Capitalization remained healthy at INR53bn, achieving 18% of its FY27 target of INR300bn, while capex stood at INR78bn, or 21% of the FY27 target of INR370bn. Management highlighted an upside risk to its FY27 capitalization guidance, although we expect greater clarity only post Q3FY27 results. Based on the order book including CWIP, new order inflows in Q1FY27 stood at INR105bn, compared with nil in FY26, as the Leh HVDC project was removed in Q4FY26. Post results, we have marginally cut our FY27E/28E EPS estimates by 1%, factoring in lower ROE from TBCB projects, and revised our TP to INR331 (2.7x FY28 BV). We retain our BUY rating. The stock offers an attractive dividend yield of ~4%.
Consolidated performance below estimates:
Consolidated revenue was INR 114bn (+3% YoY), 5%/8% below our/street estimates; EBITDA of INR 95.3bn (+4% YoY) missed by 3%/9%, but margin expanded to 82.9% (vs. 81.7% in Q1FY26) on lower other expenses (11% of revenue vs. 13%). Reported PAT was INR 37bn (+8% YoY), aided by a lower tax rate and a swing to JV profits; adjusted PAT was flattish YoY at INR 35bn, 6-7% below estimates. The softness is regulatory, not operational - a ~INR 5.6bn drag (~INR 3.3bn depreciation on assets crossing the ~12-year tariff curve, ~INR 2.3bn lower interim CERC interest) offset ~INR 7.9bn of revenue from newly commissioned assets. Availability held at 99.80% and receivable days improved to 12.1 (from 19.4).
Capex cycle accelerating:
Q1 capex was INR 77.7bn (+11% YoY) and capitalization jumped ~3.1x YoY to INR 52.8bn, both tracking ahead of FY27 guidance (INR 370bn/INR 300bn). With FY26 capex (~INR 400bn) already beating plan and a heavy commissioning slate completed post-June, management flagged upside to capitalization guidance. At a stable ~2:1 capex-to-capitalization lag, this sets up a meaningful earnings ramp from FY27, with ~21 HVDC projects under planning/bidding.
Robust bidding pipeline underpins visibility:
Works-in-hand stood at ~INR 1.75trn (83% TBCB, 14% RTM), with a bidding pipeline of >INR 1.19trn (INR 739bn under bidding, ~80% ISTS; INR 456bn to float). Key projects include Rajasthan REZ Ph-IV Barmer HVDC (INR 250bn, under BPC evaluation), Jam Khambhaliya+Jamnagar (INR 77bn) and Lakadia REZ-II (INR 75bn). Management reiterated a >INR 15trn long-term opportunity (CEA 900+ GW plan ~INR 7.9trn to FY36, Brahmaputra hydro ~INR 6.4trn, plus data centre/GH2 demand); the INR 7.9trn bids out over 3-4 years, with upside as new land/RoW costs are not yet factored in.
TBCB momentum and a maiden asset class:
PWGR won 6 of 19 projects bid FY27-to-date (>INR 22bn annual tariff), holding ~47% cumulative ISTS tariff share, and secured India's first TBCB SynCon scheme (Fatehgarh-II) — a maiden 400kV asset class for grid strength and reactive support. Operational TBCB equity doubled YoY to INR 99.7bn (+INR 34.1bn under construction), entirely equity-funded with no parent debt. Rising use of financelease accounting on new TBCB assets explains the gap between consol gross block (+67% YoY) and the depreciation differential (+27%), with no PAT impact. The recent CERC amendment also opens a new regulated BESS opportunity, on which PWGR has filed petitions.
Please refer disclaimer at https://www.plindia.com/disclaimer/
SEBI Registration No. INH000000271
