UBS Investment Research
Power Grid Corporation of India
Q2 FY12 results: In-line with UBS-e,
s ignificantly above consensus
Event: Recurring PAT 8% above consensus estimates
In Q2 FY12, Power Grid reported 6.5% YoY growth in revenue to Rs22.6bn with
an EBITDA of Rs19.0bn (+6.3% YoY) and EBITDA margin of 83.8%. Reported
PAT at Rs7.1bn and recurring PAT (after adjustments of prior period items of
Rs21m and Forex loss of Rs683m) of Rs7.8bn was up 21% YoY. The results are in
line with UBS estimates (Rs7.8bn) and above consensus (Rs7.2bn).
Impact: Growth in revenues across segments
Transmission income (90% of revenues) grew 5% YoY to Rs20.4bn, consultancy
income were at Rs696m (-12% YoY) and telecom income were up 10% YoY to
Rs501m. Revenues from Short term open access increased 61% YoY to Rs1.03bn.
Action: Key beneficiary of growth in the transmission sector
We think Power Grid will be a key beneficiary of growth in the transmission
sector; it has over 50% market share which we expect to increase. We believe
Power Grid has significant advantages: 1) the low-risk nature of its business with
ROE of 15.5% plus incentives based on transmission network availability totalling
17-18%; 2) Capex target of Rs550bn in 11th Five Year Plan and 2) as the central
transmission utility, it has been assigned the role of co-ordinator in the sector.
Valuation: Buy rating and price target of Rs135
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool, assuming 10.1% WACC.
Power Grid Corporation of India
Q2 FY12 results: In-line with UBS-e,
s ignificantly above consensus
Event: Recurring PAT 8% above consensus estimates
In Q2 FY12, Power Grid reported 6.5% YoY growth in revenue to Rs22.6bn with
an EBITDA of Rs19.0bn (+6.3% YoY) and EBITDA margin of 83.8%. Reported
PAT at Rs7.1bn and recurring PAT (after adjustments of prior period items of
Rs21m and Forex loss of Rs683m) of Rs7.8bn was up 21% YoY. The results are in
line with UBS estimates (Rs7.8bn) and above consensus (Rs7.2bn).
Impact: Growth in revenues across segments
Transmission income (90% of revenues) grew 5% YoY to Rs20.4bn, consultancy
income were at Rs696m (-12% YoY) and telecom income were up 10% YoY to
Rs501m. Revenues from Short term open access increased 61% YoY to Rs1.03bn.
Action: Key beneficiary of growth in the transmission sector
We think Power Grid will be a key beneficiary of growth in the transmission
sector; it has over 50% market share which we expect to increase. We believe
Power Grid has significant advantages: 1) the low-risk nature of its business with
ROE of 15.5% plus incentives based on transmission network availability totalling
17-18%; 2) Capex target of Rs550bn in 11th Five Year Plan and 2) as the central
transmission utility, it has been assigned the role of co-ordinator in the sector.
Valuation: Buy rating and price target of Rs135
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool, assuming 10.1% WACC.
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