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Power Grid: A very strong year - Views on News from Equitymaster
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Power Grid: A very strong year
May 31, 2013

Power Grid Corp (PGCIL) declared its results for the quarter and year ended March 2013. During the year, the company's revenues and profits grew by 26% YoY and 30% YoY respectively. Here is our analysis of the results.

Performance summary

  • Net sales rise by 26% YoY during FY13.
  • Operating profits increase at a faster pace of 29% YoY on the back of a 2% YoY margin expansion.
  • Net profits rise by 30% YoY on the back of a strong operating performance coupled with and extraordinary & prior period adjustments (gains in FY13, expenses in FY12).
  • During 4QFY13 revenues and profits rise by 7% YoY and 8% YoY respectively.
  • The cumulative transmission network stood at 100,107 ckms at the end of year.
  • Company's board recommends final dividend of Rs 1.14 per share. Total dividend yield for the year stand at Rs 2.75, which at current price provides a yield of about 2.4%.

Standalone performance summary
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 31,557 33,807 7.1% 101,643 127,579 25.5%
Expenditure 4,980 5,427 9.0% 16,530 18,214 10.2%
Operating profit (EBDITA) 26,576 28,380 6.8% 85,113 109,364 28.5%
EBDITA margin (%) 84.2% 83.9%   83.7% 85.7%  
Other income 2,531 2,348 -7.2% 6,207 5,709 -8.0%
Depreciation 7,177 9,049 26.1% 25,725 33,519 30.3%
Interest 5,099 6,799 33.3% 18,588 26,091 40.4%
Exceptional items (314) 52   (844) 739  
Prior period items (164) 117   (187) 247  
Profit before tax 16,354 15,049 -8.0% 45,976 56,449 22.8%
Tax 6,037 3,954 -34.5% 13,427 14,104 5.0%
Effective tax rate 37% 26%   29% 25%  
Profit after tax/(loss) 10,317 11,094 7.5% 32,550 42,345 30.1%
Net profit margin (%) 32.7% 32.8%   32.0% 33.2%  
No. of shares (m)       4,629.7 4,629.7  
Diluted earnings per share (Rs)*         9.0  
Price to earnings ratio (x)         12.6  
(*On a trailing 12-month basis)

What has driven performance in FY13?
  • Power Grid Corp (PGCIL) reported a revenue growth of 26% YoY during FY13. This strong growth was largely a factor of the improved project commissioning rate achieved in the year till date. The company's transmission business contributed to about 96% of the revenues (95% in FY12) and reported a revenue growth of 26% YoY. As for the other two segments - consultancy and telecom - these reported revenue growth of 9% YoY and 16% YoY respectively. The company's consultancy business has 124 assignments under execution which are valued at over Rs 120 bn with 19 projects worth Rs 67.5 bn being under consideration. The telecom segment added 18 new clients during the year.

    Segmental snapshot...
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Transmission  31,372 32,798 4.5% 98,686 124,490 26.1%
    % share 95.3% 94.6%   95.2% 95.7%  
    Consultancy  922 1,225 32.8% 2,924 3,180 8.8%
    % share 2.8% 3.5%   2.8% 2.4%  
    Telecom  609 640 5.2% 2,103 2,438 15.9%
    % share 1.8% 1.8%   2.0% 1.9%  
    Not adjusted for inter-segment revenues

  • At the end of the year, PGCIL's debt/equity ratio stood at 72:28 or 2.6:1. As was mentioned earlier, the company's massive capex plan of spending Rs 1 trillion during the XII plan (FY13 - FY17) - which averages to Rs 200 bn per year - will require the company to take on more debt. As per the company, this capex will be funded in a mix of 70:30, which means Rs 300 bn will be funded through internal accruals and balance through domestic and international borrowings. The company has reported that debt of Rs 348 bn has already been tied up.

  • In addition to the Rs 1 trillion capex planned for XII plan, the company is also looking for opportunities in the Green Exchange Corridor to facilitate the flow of renewable energy into the national grid. The capex envisaged for the same is Rs 430 bn.

What to expect?
At the current price of Rs 113, the stock is trading at a multiple of 1.7 times our estimated FY15 book value per share. Given PGCIL's long term prospects and solid business model - its monopoly in the power transmission segment- we believe the stock continues to be a good defensive play in the infrastructure space. The scenario would only improve as and when the hurdles in the power sector get ironed out. As such, we maintain our Buy view on the stock from a long term perspective. We would like to reiterate that despite being a largecap company, PGCIL should not form more than 5% of one's portfolio. Please do view our suggested asset allocation page for further details.

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