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Power Grid: Continues to chug along - Views on News from Equitymaster
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Power Grid: Continues to chug along
Nov 24, 2014

Power Grid Corp (PGCIL) declared its results for the quarter ended September 2014 recently. The company reported a revenue growth of 5% YoY, while profits declined by 3% YoY respectively. Here is our analysis of the results.

Performance summary
  • Revenues rise by 5% YoY led by the company's transmission business segment which grew by 9% YoY.
  • Operating profits grow by 6% YoY during the quarter.
  • Profits after tax decline by 3% YoY. A faster rise in depreciation and interest charges led to the same.
  • Company announces final dividend of Rs 1.31 per share. Total dividend for the year stands at Rs 2.58 per share (dividend yield of 1.8%).

Standalone financial performance
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net sales 39,995 41,785 4.5% 75,595 81,204 7.4%
Expenditure 6,108 5,882 -3.7% 10,087 11,682 15.8%
Operating profit (EBDITA) 33,887 35,903 6.0% 65,507 69,522 6.1%
EBDITA margin (%) 84.7% 85.9%   86.7% 85.6%  
Other income 1,049 1,307 24.6% 1,790 2,640 47.5%
Depreciation 9,660 12,116 25.4% 19,904 23,667 18.9%
Interest 8,014 9,891 23.4% 15,613 19,170 22.8%
Exceptional items - -   - -  
Prior period items (55) (105)   (423) 6  
Profit before tax 17,207 15,099 -12.3% 31,357 29,330 -6.5%
Tax 4,815 3,086 -35.9% 8,562 5,952 -30.5%
Effective tax rate 28% 20%   27% 20%  
Profit after tax/(loss) 12,392 12,013 -3.1% 22,795 23,378 2.6%
Net profit margin (%) 31.0% 28.7%   30.2% 28.8%  
No. of shares (m)       5,231.6 5,231.6  
Diluted earnings per share (Rs)*         8.8  
Price to earnings ratio (x)         16.1  
(*On a trailing 12-month basis)

What has driven performance in 2QFY15?
  • PGCIL reported an 5% YoY growth in revenues, led by the company's transmission dividend (contributing to 97% of revenues). This segment's revenues rose by 8% YoY while revenues from the consultancy (down 71% YoY) and telecom (down 12% YoY) segments dropped considerably in the quarter gone by.

  • PGCIL's operating profits were up by 6% YoY with margins expanding by 1.2% YoY to 85.9%. While higher other income (due to unutilized proceeds of FPO) did provide some fillip to earnings, higher depreciation and interest charges rose by about a fourth each, thereby impacting the company's performance at the profit before tax level. This has largely been the case due to a higher rate of capitalisation seen in the company in recent quarters.
What to expect?
At current price of Rs 142, the stock trades at 16.1 times its trailing twelve-month earnings and 1.62 times our estimated FY17 book value.

Not much has changed in terms of the long term picture and story for PGCIL as it continues to chug along well. 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 the stock at current levels.

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

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