Power Grid Corporation of India (PGCIL) reported Rs46.6bn revenue in 4QFY15, a growth of 18.5% yoy in-line with our expectation on account of better execution. The company reported EBITDA of Rs40.5bn in 4Q. PAT came higher and stood at Rs14.1bn due to higher execution of key projects. We maintain our positive stance as its fundamentals remain strong. In the power utilities space, PGCIL is a safe bet as it is least exposed to operational risks like fuel and SEB’s weak financials. Thus, we recommend BUY on the stock with a Target Price of Rs170.
Higher capitalization led to higher sales
Growth in sales for the quarter was largely powered by transmission income. Transmission income (94% of revenues) grew 19.8% yoy to Rs45.6bn, telecom income grew by 30.0% yoy to Rs884mn on the back of strong order book. However, its consultancy income de-grew by 10.1% yoy to Rs1,544mn in 4QFY15 post completion of projects.
PAT up by 20.1% yoy due to higher capitalization
Company’s EBITDA margins continue to improve. In 4Q it was up by 142 bps yoy driven by power transmission business, which showed overall improvement by 190 bps yoy while Telecom margins and Consultancy margins were down by 15% yoy and by 5% yoy, respectively. Its interest cost rose to 27% yoy, while depreciation cost increased 31.9% yoy on account of commissioning of projects earlier.
During the 4QFY15, the company had capitalized assets worth Rs69bn as compared to Rs58bn. In FY15, the assets capitalized stood at Rs218bn.
In Consultancy business, the company has total projects under execution valued ~Rs195bn. During the 4QFY15, the revenue in consultancy business was lower as there was no sale of product in that period. However, the company received new order worth Rs71bn in 4QFY15.
In Telecom business, the company added 44 new clients and completed 35 point to point dedicated bandwidth leased lines.
Outlook and Valuation
We have marginally revised earnings upwards by 2.1% & 2.0% for FY16E and FY17E earnings, respectively. At the CMP, the stock trades at 1.8x FY16E and 1.7x FY17E P/BV, respectively and 13.9x P/E of FY16E and 12.0x P/E of FY17E, which we believe is attractive. In the power utilities space, PGCIL is a safe bet as it is least exposed to operational risks like fuel and SEB’s weak financials. Our Target Price is based on regulated equity in transmission projects under operation and capital work in progress. We are valuing investments and cash at book value, and consultancy and STOA business at 6x FY17E EBITDA. Thus, we recommend BUY on the stock with a Target Price of Rs170. BUY
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