Buy Power Grid Corporation of India Ltd for the Target Rs.345 by Motilal Oswal Financial Services Ltd
Muted performance; robust capex outlook intact
* In 1QFY26, Power Grid Corporation (PWGR) reported a standalone (SA) revenue of INR99.3b (-1% YoY), 6% below our estimate. EBITDA was 12% below our estimate at INR81.2b (-7% YoY), hit by a 66% YoY surge in other expenses. Adj. SA PAT was 6% below our est. at INR34.7b, supported by higher-than-expected other income and lower tax expenses.
* In the analyst meet, management reiterated its robust capex trajectory, improving capitalization trends, and a strong project pipeline. Capex guidance remains unchanged at INR280b/INR350b/INR450b for FY26/FY27/FY28, respectively. However, the capitalization target for FY26 has been slightly revised downward to INR220b (vs. earlier guidance of INR230–250b), owing to persistent issues related to right-of-way (RoW).
* Looking ahead, the interstate and intrastate TBCB pipelines are expected to witness cumulative bidding opportunities of INR6t and INR3t, respectively, by 2032, underscoring a healthy growth runway for PWGR’s regulated and bid-based project segments. ? We reiterate our BUY rating on the stock with a TP of INR345 (based on 3x FY27E BVPS).
* We reiterate our BUY rating on the stock with a TP of INR345 (based on 3x FY27E BVPS).
EBITDA below estimate; higher other income supports PAT
* SA performance:
* In 1QFY26, PWGR reported SA revenue of INR99.3b (-1% YoY), 6% below our estimate. EBITDA was 12% below our estimate at INR81.2b (-7% YoY), hit by a 66% YoY surge in other expenses.
* Adj. SA PAT was 6% below our est. at INR34.7b, supported by higher-thanexpected other income and lower tax expenses. The weakness in PAT was likely attributable to capitalization continuing to trail company guidance.
* The net movement in regulatory deferral account balances was at INR2.1b during the quarter.
* Consolidated performance:
* The company reported an EBITDA of INR 93.6b (-2% YoY), while PAT declined ~2% YoY to INR 36.3b.
* The transmission segment remained the primary revenue driver, contributing 97.31% of consolidated EBIT (INR62.2b). The telecom segment contributed 2.21%, with EBIT of INR1.4b.
* In 1QFY26, its JVs reported a loss of INR0.44b (vs. a loss of INR0.3b in 4QFY25 and a profit of INR0.29b in 1QFY25).
The Board of Directors approved the following:
* Enhancement of the borrowing limit from INR160b to INR250b for FY25-26, through various sources, including private placement of non-convertible debentures (NCDs).
* Fundraising of up to INR300b during FY26-27 via domestic bonds (secured/unsecured, non-convertible, redeemable, taxable/tax-free) under private placement, in one or more tranches.
* In-principle approval for participation in up to two TBCB projects, with a cumulative estimated cost of INR5b, through a consortium of PWGR and PGInvIT.
Highlights of the 1QFY26 performance:
* Project execution & operational performance
*Consolidated capex for 1QFY26 stood at INR69.8b, with capitalization of INR28b.
* Added 652ckm of transmission lines and 19,370 MVA of transformation capacity during the quarter.
* Transmission system performance remained strong with 99.84% availability and 0.08 trippings per line per year as of 1QFY26.
* Consultancy segment
* Revenue grew to INR3.3b in 1QFY26 (vs. INR1.2b in 1QFY25), supported by an INR1.5b contribution from the newly launched smart meter business.
Capex & capitalization guidance
*The capex target has been maintained for FY26 at INR280b (RTM: INR35.5b, TBCB: INR190.6, and others: INR53.8b).
* Capex target for FY27/FY28: INR350b/INR450b.
* The FY26 capitalization target stands at INR220b, with quarterly phasing as follows: 2Q – INR30b, 3Q – INR70b, and 4Q – INR80b. ? Capitalization target for FY27: INR200-250b.
Works in hand
* Total work-in-hand stands at INR1.48t, including INR999b for TBCB projects, INR90b for ongoing RTM projects, INR370b for new RTM projects, and INR26b for other projects.
Valuation and view
We derive our TP of INR345 for PWGR based on FY27E BVPS and a P/B multiple of 3x, which we believe is reasonable given that its capex and capitalization are on a multi-year uptrend with the order book at an elevated level
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