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Power Grid: Good show in margins - Views on News from Equitymaster

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Power Grid: Good show in margins
Feb 17, 2015

Power Grid Corp (PGCIL) declared its results for the quarter ended December 2014 recently. The company reported a revenue and profit growth of 18% YoY respectively. Here is our analysis of the results.

Performance summary
  • Revenues rise by 18% YoY led by the company's transmission business segment which grew by 20% YoY.
  • Operating profits were higher by 21% YoY as margins expanded to 86.6% from 84.3% in corresponding quarter last year.
  • Profits grow by 18% YoY during the quarter.
  • During 9mFY15, revenues and profits up by 11% YoY and 7% YoY respectively.


Standalone financial performance
(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Net sales 36,846 43,536 18.2% 112,440 124,740 10.9%
Expenditure 5,792 5,840 0.8% 16,908 17,093 1.1%
Operating profit (EBDITA) 31,054 37,696 21.4% 95,532 107,647 12.7%
EBDITA margin (%) 84.3% 86.6%   85.0% 86.3%  
Other income 1,148 1,325 15.4% 2,938 3,965 35.0%
Depreciation 9,903 13,007 31.3% 29,207 36,674 25.6%
Interest 7,874 10,247 30.1% 23,486 29,417 25.3%
Prior period items (10) (295)   (5) (718)  
Profit before tax 14,415 15,473 7.3% 45,772 44,803 -2.1%
Tax 3,995 3,183 -20.3% 12,557 9,136 -27.2%
Effective tax rate 28% 21%   27% 20%  
Profit after tax/(loss) 10,420 12,289 17.9% 33,216 35,667 7.4%
Net profit margin (%) 28.3% 28.2%   29.5% 28.6%  
No. of shares (m)       5,231.6 5,231.6  
Diluted earnings per share (Rs)*         9.2  
Price to earnings ratio (x)         16.6  
(*On a trailing 12-month basis)

What has driven performance in 3QFY15?
  • PGCIL reported a growth of 18% YoY during the quarter ended December 2014. The company's largest business segment (transmission division, contributing to about 96% of revenues) witnessed a growth of 20% YoY during the quarter. The consultancy business (2.5% of revenues) de-grew by a fourth, while the telecom segment witnessed a growth of 15% YoY.

  • PGCIL's operating profits were up by 21% YoY during the quarter, with margins expanding by 2.3% YoY to 86.6%. Net profits were up by 18% YoY on the back of a lower tax outgo coupled with a relatively faster rise in interest and depreciation charges. Adjusting for the prior period items, profit growth stands at 21% YoY.

  • During 9mFY15, the company's revenues and profits were up by 11% YoY and 7% YoY respectively. Adjusted profits are higher by 9.5% YoY.
What to expect?
At current price of Rs 153, the stock trades at 16.6 times its trailing twelve month earnings and at about 1.6 times our estimated FY16 book value per share.

The company has done well in terms of execution in the recent past. Capitalization during the quarter stood at Rs 72 bn as compared to Rs 47 bn and Rs 49 bn during the preceding two quarters. Total capitalisation and capex during 9mFY15 stood at Rs 1678bn and Rs 156 bn respectively.

As PCGIL continues to chug along, not much has changed in terms of its long term picture and story. We maintain our stance that the company maybe amongst the safest plays in the power space; however, we also do believe that the positives seem to be captured in the valuations and thus believe that the stock is fairly valued at the moment. We recommend investors to not buy more of the stock at current valuations.

We would like to remind investors that no stock should comprise of more than 3-5% of their portfolio.

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