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Power Grid: Profits hurt by higher taxes
Feb 9, 2011

Power Grid has declared its 3QFY11 results. The company has reported a 21% YoY growth each in sales and net profit. Here is our analysis of the results.

Performance summary
  • Net sales grow by 21% YoY during 3QFY11, at the same rate during 9mFY11.
  • Operating margins rise slightly to 84.2% during the quarter, from 83.5% in 3QFY10. This is largely on account of lower operational costs (as percentage of sales).
  • Led by higher operating margins and lower interest costs, net profit grows by 21% YoY during the quarter. The growth would have been higher but for a sharp jump in tax expenses.
  • Board recommends an interim dividend of Rs 0.5 per share (dividend yield of 0.5%).

Financial performance snapshot
(Rs m) 3QFY10† 3QFY11† Change 9mFY10† 9mFY11† Change
Sales 16,906 20,521 21.4% 51,062 61,779 21.0%
Expenditure †2,787 ††3,247 16.5% †8,481 †9,836 16.0%
Operating profit (EBDITA) 14,119 17,274 22.3% 42,581 51,943 22.0%
Operating profit margin (%) 83.5% 84.2%   83.4% 84.1%  
Other income †746 ††931 24.7% †2,744 †3,400 23.9%
Depreciation †5,360 ††5,709 6.5% 15,848 16,164 2.0%
Interest †4,270 †††4,051 -5.1% 11,959 12,142 1.5%
Profit before tax †5,236 ††8,445 61.3% 17,517 27,037 54.3%
Extraordinary income/(expense) 4 ††(47)   ††††10 †(70)  
Tax †361 ††2,487 588.5% †2,583 †7,510 190.8%
Profit after tax/(loss) †4,878 †††5,912 21.2% 14,944 19,458 30.2%
Net profit margin (%) 28.9% 28.8%   29.3% 31.5%  
No. of shares (m)       ††† 4,207.7 ††† 4,629.5  
Diluted earnings per share (Rs)*         ††5.4  
P/E ratio (x)*         17.8  
* On a trailing 12-months basis

What has driven performance in 3QFY11?
  • Power Grid (PGCIL) grew its net sales by 21% YoY during the quarter. This was largely helped by a 25% YoY growth in its transmission income (98% of total). A part of this increase in transmission income was due to commissioning of new projects during the quarter. As for PGCILís other business of consultancy, sales declined by 16% YoY during the quarter.

  • PGCIL saw a small improvement in its operating margins during 3QFY11. Its operation and maintenance costs declined from 7.6% of sales in 3QFY10 to 6.6% this quarter, thus aiding the improvement in margins.

  • Helped by higher sales and better operating margins, as also lower interest costs, PGCILís net profits grew by 21% YoY during the quarter. The profit growth could have been higher but for the increase in MAT rate that led to the companyís tax expenses multiplying around 7 times. Profit growth for 9mFY11 stood at 30% YoY, on the back of a 21% YoY growth in net sales.

What to expect?
At the current price of Rs 96, the stock is trading at a multiple of 1.9 times our estimated FY13 book value per share. PGCILís 9mFY11 performance has been better than our expectations and thus we would have to revise upwards our future estimates for the company. At the current valuations, we maintain our view on the stock from a 2-3 years perspective.

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