Power Grid Corporation
Current market price: Rs 107.10
Target price: Rs 100
Downside: -6.62%
Brokerage: IIFL Research
In the first two years of the XI Five Year Plan, Power Grid has spent Rs 14,800 crore (of estimated Rs 55,000 crore) on network augmentation. Given this implementation, the brokerage believes PGCIL is better placed to complete the national grid project on time by FY12. Adjusting for capital work in progress (37 per cent of the net worth), PGCIL’s RoE on operational assets works out to 17 per cent in FY09, a marginal improvement over FY08 (16.4 per cent).However, as of FY09, PGCIL has cash and cash equivalents of Rs 3,200 crore, and estimated cash flow through FY12 can support equity for only Rs 33,600 crore projects, as compared to the proposed Rs 40,000 crore. Thus, PGCIL is expected to raise equity of Rs 1,800-2,000 crore over the next 12-15 months.
Overall given the visibility on the capital expenditure programme and new regulations that increase the benchmark RoE form 14 per cent to 15.5 per cent, the brokerage upgrades FY10-11 earnings estimates by 10 per cent and 7 per cent respectively. At the recommended price of Rs 107.5 the stock trades at 3 times core book value on FY11. The brokerage thinks valuations adequately reflect these positives, and are unlikely to trigger outperformance hereon.
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