PWGR’s capitalisation till October,2011 at Rs 51 bn gives us confidence that it will achieve our
projection of Rs 80 bn for FY12 with ease. Data shared on leasing of transmission towers to
telecom operators, capex, future ordering scenario, etc., points to strong growth/earnings
momentum ahead. BUY.
Key highlights from the analyst meet
The new CMD and Director (Finance) addressed investors in their first analyst meet post
taking over their present position in September, 2011 and July, 2011, respectively. CMD’s
detailed presentation, on current issues and steps taken for the next phase of growth, was
encouraging.
Company confirmed that capitalisation number till 1HFY12 was Rs 40.6 bn and till
October,2011 was Rs 51 bn. Management is confident that, in FY12, it will be able to surpass
FY11 capitalisation of Rs 73.1 bn with ease and data shared with us, till October,2011, do
provide comfort. We note that the new CMD/ Director (Finance) refrained from giving any
guidance for future years.
Company remains confident that it will incur a capex of ~Rs 1,000 bn in the XIIth plan vs. ~Rs
550 bn in the XIth plan
Company had already leased ~800 transmission line towers for mounting telecom antennas
in Punjab, Himachal Pradesh and J&K. The lease period is for 10 years and company will
receive 10% of revenue earned by the telecom operator or fixed charge ( Rs 514.6 mn),
whichever is higher. It will have to pay ~6% of the gross revenue to DoT as licensee fees.
Company highlighted that it has offered another 30,000 towers on lease to telecom operators
in the states of Rajasthan, Haryana, Uttarkhand, Delhi and Uttar Pradesh.
We note that earnings from telecom tower leasing have to be shared with the transmission
beneficiaries and company has already applied to CERC to determine the sharing formulae.
Also, please note that, so far, we have not included any benefits from transmission tower
leasing to our earnings projection.
As for the ordering scenario for FY12, company said that ~142 projects worth Rs 78.3 bn has
already been awarded, so far, till October,2011. Also, so far, notice inviting tenders (NITs) has
been called for ~Rs 138.15 bn worth of projects, of which tenders have been opened for
projects worth Rs 54 bn and tenders for remaining Rs 84 bn are yet to open. Management
highlighted that bid-opening is typically done after 45 days of receiving the bids and ordering
cycle is ~3 months from receiving the bids.
As for commissioning of transmission assets associated with Mundra UMPP, company
highlighted that of the project cost of ~Rs 50 bn, ~Rs 7 bn has been commissioned in
Septemer,2011 and asset capitalised ( 30% of the project cost) in October,2011. The
remaining part of the project should be commissioned in phases over FY12/FY13.
Consulting revenue declined by 17% YoY in 1HFY12 to ~Rs 1.3 bn as large for of the
APDRP/RGGVY work was completed, with the XIth plan approaching its end soon. Company
is confident that by next quarter it will be able to report new projects in its consulting division
which will compensate for the decline in APDRP/RGGVY work.
Present debtors outstanding beyond 60 days is ~Rs 5.3 bn, of which Tamil Nadu's
contribution is ~Rs 2.15 bn. Company is in talks with TN/others and remains confident that it
will be able to collect its dues, though with some delays.
PWGR’s 2QFY12 adjusted earnings better than estimate on higher other income
PWGR’s 2QFY12 results were better than our estimate primarily on higher other income vs.
estimate.
In 2QFY12, PWGR adjusted sales at Rs 22.7 bn ( up 6.7% YoY) and adjusted EBITDA at Rs
19.2 bn ( up 7.6% YoY) are in-line with our estimate of Rs 22.9 bn and 19.2 bn, respectively.
However, adjusted profit at Rs 7.5 bn ( up 25% YoY) is higher than our estimate of Rs 7.3 bn,
largely due to higher other income at Rs 1.94 bn ( up 102% YoY).
Other income is higher due to dividend income from JVs received in the quarter at ~Rs 200
mn ( dividend income was booked in 1Q in FY11 vs 2Q in FY12) and ~Rs 400 mn interest
income on difference between recovery as per old tariff order and provisional billing .
Broad break-up of other income: (a) Interest on bank deposits: Rs 780 mn, (b) Interest
income on difference between recovery as per old tariff order and provisional billing (- Rs 400
mn, (c) Interest on bonds- Rs 250 mn, (d) Lease income- Rs 120 mn, (e) Dividend income-
Rs 200 mn, (f) Miscellaneous income- Rs 192 mn.
We prefer PWGR to other Indian utilities; maintain Buy
We prefer PWGR to other Indian utilities as: 1) it is partially insulated from coal shortage
issues faced by power generators; 2) low risk to our earnings CAGR of 14% over FY11-14F;
3) it factors in no tax arbitrage profits (NTPC and NHPC do) and so there is no downside risk
from this; and 4) we think the stock should outperform given its earnings quality, strong
momentum and sustainable ROE. At P/BV of 1.8x FY13F BV, valuations look reasonable to
us.
projection of Rs 80 bn for FY12 with ease. Data shared on leasing of transmission towers to
telecom operators, capex, future ordering scenario, etc., points to strong growth/earnings
momentum ahead. BUY.
Key highlights from the analyst meet
The new CMD and Director (Finance) addressed investors in their first analyst meet post
taking over their present position in September, 2011 and July, 2011, respectively. CMD’s
detailed presentation, on current issues and steps taken for the next phase of growth, was
encouraging.
Company confirmed that capitalisation number till 1HFY12 was Rs 40.6 bn and till
October,2011 was Rs 51 bn. Management is confident that, in FY12, it will be able to surpass
FY11 capitalisation of Rs 73.1 bn with ease and data shared with us, till October,2011, do
provide comfort. We note that the new CMD/ Director (Finance) refrained from giving any
guidance for future years.
Company remains confident that it will incur a capex of ~Rs 1,000 bn in the XIIth plan vs. ~Rs
550 bn in the XIth plan
Company had already leased ~800 transmission line towers for mounting telecom antennas
in Punjab, Himachal Pradesh and J&K. The lease period is for 10 years and company will
receive 10% of revenue earned by the telecom operator or fixed charge ( Rs 514.6 mn),
whichever is higher. It will have to pay ~6% of the gross revenue to DoT as licensee fees.
Company highlighted that it has offered another 30,000 towers on lease to telecom operators
in the states of Rajasthan, Haryana, Uttarkhand, Delhi and Uttar Pradesh.
We note that earnings from telecom tower leasing have to be shared with the transmission
beneficiaries and company has already applied to CERC to determine the sharing formulae.
Also, please note that, so far, we have not included any benefits from transmission tower
leasing to our earnings projection.
As for the ordering scenario for FY12, company said that ~142 projects worth Rs 78.3 bn has
already been awarded, so far, till October,2011. Also, so far, notice inviting tenders (NITs) has
been called for ~Rs 138.15 bn worth of projects, of which tenders have been opened for
projects worth Rs 54 bn and tenders for remaining Rs 84 bn are yet to open. Management
highlighted that bid-opening is typically done after 45 days of receiving the bids and ordering
cycle is ~3 months from receiving the bids.
As for commissioning of transmission assets associated with Mundra UMPP, company
highlighted that of the project cost of ~Rs 50 bn, ~Rs 7 bn has been commissioned in
Septemer,2011 and asset capitalised ( 30% of the project cost) in October,2011. The
remaining part of the project should be commissioned in phases over FY12/FY13.
Consulting revenue declined by 17% YoY in 1HFY12 to ~Rs 1.3 bn as large for of the
APDRP/RGGVY work was completed, with the XIth plan approaching its end soon. Company
is confident that by next quarter it will be able to report new projects in its consulting division
which will compensate for the decline in APDRP/RGGVY work.
Present debtors outstanding beyond 60 days is ~Rs 5.3 bn, of which Tamil Nadu's
contribution is ~Rs 2.15 bn. Company is in talks with TN/others and remains confident that it
will be able to collect its dues, though with some delays.
PWGR’s 2QFY12 adjusted earnings better than estimate on higher other income
PWGR’s 2QFY12 results were better than our estimate primarily on higher other income vs.
estimate.
In 2QFY12, PWGR adjusted sales at Rs 22.7 bn ( up 6.7% YoY) and adjusted EBITDA at Rs
19.2 bn ( up 7.6% YoY) are in-line with our estimate of Rs 22.9 bn and 19.2 bn, respectively.
However, adjusted profit at Rs 7.5 bn ( up 25% YoY) is higher than our estimate of Rs 7.3 bn,
largely due to higher other income at Rs 1.94 bn ( up 102% YoY).
Other income is higher due to dividend income from JVs received in the quarter at ~Rs 200
mn ( dividend income was booked in 1Q in FY11 vs 2Q in FY12) and ~Rs 400 mn interest
income on difference between recovery as per old tariff order and provisional billing .
Broad break-up of other income: (a) Interest on bank deposits: Rs 780 mn, (b) Interest
income on difference between recovery as per old tariff order and provisional billing (- Rs 400
mn, (c) Interest on bonds- Rs 250 mn, (d) Lease income- Rs 120 mn, (e) Dividend income-
Rs 200 mn, (f) Miscellaneous income- Rs 192 mn.
We prefer PWGR to other Indian utilities; maintain Buy
We prefer PWGR to other Indian utilities as: 1) it is partially insulated from coal shortage
issues faced by power generators; 2) low risk to our earnings CAGR of 14% over FY11-14F;
3) it factors in no tax arbitrage profits (NTPC and NHPC do) and so there is no downside risk
from this; and 4) we think the stock should outperform given its earnings quality, strong
momentum and sustainable ROE. At P/BV of 1.8x FY13F BV, valuations look reasonable to
us.
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