BUY POWER GRID CORP INDIA LTD. Result Update: Q2 FY14. CMP Target Price NOVEMBER 30 th 2013 SYNOPSIS ISIN: INE752E01010

Transcription

1 BUY CMP Target Price POWER GRID CORPORATION OF INDIA LTD Result Update: Q2 FY14 NOVEMBER 30 th 2013 ISIN: INE752E01010 Index Details Stock Data Sector Electric Utilities BSE Code Face Value wk. High / Low (Rs.) /86.70 Volume (2wk. Avg. Q.) Market Cap (Rs. in mn.) Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) SYNOPSIS Power Grid Corporation Of India Limited is the Central Transmission Utility (CTU) of the country under Ministry of Power is one amongst the largest Power Transmission utilities in the world. The company own and operate more than 1,02,540 Ckt. kms network of transmission lines, 1,76,323 MVA transformation capacity and 173 nos. substations The company s net sales registered 29.61% increase and stood at a record Rs million from Rs million over the corresponding quarter last year. Net Profit has increased from Rs million for the quarter ended Sep 30, 2012 to Rs million for the quarter ended Sep 30, Total Income has increased from Rs million in Q2 FY13, to Rs million in Q2 FY14. 1 Year Comparative Graph Agreements with Bihar & Odisha with a total project cost of ~Rs million finalized. POWER GRID CORP INDIA LTD BSE SENSEX During the quarter the company has added 5 new clients in Telecom, 1 from Govt sector 4 from Pvt. Sector and added 4 new orders in domestic consultancy; 1 from Govt sector 3 from pvt. Sector. Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 20% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Power Gird Corporation of India Ltd NTPC Ltd Reliance Infrastructure Ltd Torrent Power Company Ltd

2 QUARTERLY HIGHLIGHTS (STANDALONE) Results updates- Q2 FY14, Power Grid Corporation of India Limited Months SEP-13 SEP-12 % Change (POWERGRID) is one amongst the largest Power Transmission utilities in the world. The company owns and operates about 1,02,540 ckt kms of Net Sales PAT transmission lines and the transformation capacity EPS of about 1,76,323 MVA as on 31st October 2013 has reported its financial results for the quarter ended 30 SEPTEMBER, EBITDA The company has achieved a turnover of Rs million for the 2 nd quarter of the current year as against Rs millions in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs millions an increase of 22.81% in the corresponding quarter of the previous year and a net profit of Rs million against Rs million reported respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs for the 2 nd quarter as against an EPS of Rs in the corresponding quarter of the previous year. Break up of Expenditure: During the quarter Total Expenses rose by 27 per cent mainly on account of Increase in Transmission, Administration & Other Expenses with employee benefit expenses and Depreciation & Amortization expenses, when compared to previous quarter Q2 FY13. Total expenditure in Q2 FY14 was at Rs million as against Rs million in Q2 FY13. Transmission, Administration & Other Expenses is Rs million in Q2 FY14 against Rs million in the correspondent quarter of the previous year. Employee Benefits expenses were at Rs mn in Q2 FY14 against Rs mn in Q2 FY13, whereas Depreciation & amortization is at Rs mn against Rs mn in Q2 FY13 whereas Purchase of stock in trade stood at Rs mn in Q2 FY14 are the primarily attributable to growth of expenditure.

3 Segment Revenue Latest Updates During the quarter the company has added 5 new clients in Telecom, 1 from Govt sector 4 from Pvt. Sector and added 4 new orders in domestic consultancy; 1 from Govt sector 3 from pvt. Sector. In FY13 and H1FY14 (18 months), 28.2% of XIIth Plan capex target has been achieved. Agreements with Bihar & Odisha with a total project cost of ~Rs million finalized. Ease of access to low cost debt international ratings capped at sovereign ratings and domestically highest rating by CRISIL, ICRA & CARE. Pace of Capacity Addition has increased 9,754 ckm added in the last 30 months (April 11 September 13) as compared to 82,355 ckm added in first 252 months (Inception March 11). 79,328 MVA capacity added in the last 30 months (April 11 September 13) as compared to 93,050 MVA added in first 252 months (Inception March 11). Major Projects Commissioned in FY14-15 Common Scheme for 765 KV Pooling Station and Network associated with DVC & Maithon Right Bank Project. Transmission System associated with Mundra UMPP. Transmission System of Vindhyachal-IV and Rihand-III (1000MW each) Generation Projects.

4 Transmission System for Phase-I Generation Projects in Orissa,Jharkhand and West Bengal - Part-B. Supplementary Transmission System associated with DVC & Maithon Right Bank Project. Transmission System for Phase-I Generation Projects in Orissa - Part-A, in Jharkhand and West Bengal - Part-A2. Kudankulam - APP Transmission System (Balance lines). Transmission System associated with Pallatana Gas Based Power Project and Bongaigaon Thermal Power Station (BTPS). Transmission System strengthening in Western part of WR for IPP Generation Projects in Chhattisgarh - Part-D. COMPANY PROFILE POWER GRID CORPORATION OF INDIA LIMITED (POWERGRID), the Central Transmission Utility (CTU) of the country under Ministry of Power is one amongst the largest Power Transmission utilities in the world. In October 1992, the National Power Transmission Corporations name was changed to Power Grid Corporation of India Limited, as we know of it today. POWERGRID is a Navratna Company and the Central Transmission Utility (CTU) of the country. An innovation in Technical & Managerial fields has resulted in coordinated development of power transmission network and effective operation and management of Regional and National Grid. The company has Deploying best known practices in Operation & Maintenance with Preventive Maintenance, Condition Monitoring, Modern Techniques viz. online equipment monitoring, Aerial patrolling, Emergency restoration system, Residual Life Analysis, Remote operation of Sub-station etc. Pursuing its Global vision and successfully consolidating its presence as a strong player in emerging markets of South Asia, Middle-east Asia CIS & African countries. Business Power System Management Our core business is the transmission of electric power. As on 31st October 2013, we own and operate more than 1,02,540 Ckt. kms network of transmission lines, 1,76,323 MVA transformation capacity and 173 nos. substations that constitutes most of India s interstate and inter-regional electric power transmission system and carries electric power across India. Total Inter-regional power transfer capacity is 32,000 MW. This gigantic transmission network, spread over length and breadth of the country, is consistently maintained at an availability of over 99%.

5 Telecom POWERGRID with its brand name POWERTEL in Telecom business is the only utility in the Country having overhead optic fibre network using Optical Ground Wire on power transmission lines. POWERGRID has an all India Broad Band Telecom Network of about Kms and intra city network connecting 290 cities across india. POWERGRID enabled to create additional economic value by stimulating the development of Indian Telecom Sector especially in the difficult terrain of North East Region and Jammu & Kashmir. Business Segments National Long Distance Internet Service Provider Infrastructure Provider International Business International Business Department is created with the objective to spread POWERGRID s engineering services in Power Transmission Business across the world. Global Consultant Through implementation of huge transmission networks in India and abroad and by adopting latest technology in multifarious topology and environment, POWERGRID has emerged as a renowned consultant in Power Sector globally. POWERGRID has been entrusted with more than 300 consultancy assignments in India and 45 assignments other countries and provides consultancy in the areas Transmission; Distribution/Rural Electrification/Sub-transmission; Load Despatch & Communication; Grid Management; Telecom & Smart Grid. POWERGRID has 20 international consultancy projects execution experience in following countries: Afghanistan, Bangladesh, Bhutan, Ethiopia, Nigeria, Nepal, Kenya, Myanmar, Srilanka, Tajikistan, UAE, Kyrgyz Republic, Pakistan and Congo. Consultant for EPC and O&M agencies for CASA 1000 project

6 Services a) System Engineering & Feasibility Studies b) Environmental & Social Impact Assessment c) Design and Engineering d) Contract Services e) Project Management and Construction Supervision f) Owner's & Lender's Engineer g) Other Services Major International Clients Domestic Consultancy POWERGRID has a large network of primary transmission system of 168 EHV substations and over circuit kms of transmission lines. Building upon its un-matched techno-managerial excellence in various fields of power system, POWERGRID has been providing one stop consultancy services to State owned utilities, Private utilities, Central Public Sector Undertakings and Government departments. It has a client base of around 125 in power sector and is expanding. Over 115 domestic projects under execution and Signed agreement with 6 NER states to provide technical / managerial support for intra-state T&D system improvement.

7 Major Domestic Clients Joint Ventures Power links Transmission Ltd Torrent Power Grid Ltd Jaypee Power Grid Ltd Teestavalley Power Transmission Ltd North-East Transmission Company Ltd Parbati-Koldam Transmission Company Ltd National High Power Test Laboratory Pvt. Ltd

8 Energy Efficiency Services Ltd Cross Border Power Transmission Company Ltd. Kalinga Bidyut Prasaran Nigam Private Ltd. Power Transmission Company Nepal Ltd. (PTCN not include as POWERGRID is yet to infuse capital in to the company). Subsidiaries Nagapattinam Madhugiri Transmission Company Ltd (NMTCL). Vemagiri Transmission System Ltd (VTSL) Power System Operation Corporation Ltd (POSOCO). Vizag Transmission Ltd

9 FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31, E 2012A 2013A 2014E 2015E I. EQUITY AND LIABILITIES: A) Shareholders Funds: a) Share Capital b) Reserves and Surplus Sub -Total Net worth B) Deferred Revenue C) Non-Current Liabilities: a) Long-term borrowings b) Deferred Tax Liabilities [Net] c) Other Long Term Liabilities d) Long Term Provisions Long term Liabilities D) Current Liabilities: a) Short-term borrowings b) Trade Payables c) Other Current Liabilities d) Short Term Provisions Sub -Total Current Liabilities TOTAL EQUITY AND LIABILITIES (A + B + C + D) II. ASSETS: E) Non-Current Assets: a) Fixed Assets i. Tangible Assets ii. Intangible Assets iii. Capital work In progress iv. Intangible Assets Under development b) Construction Stores c) Non Current Investments d) Deferred Foreign currency fluctuation asset e) Long Term Loans and Advances Sub -Total Non-Current Assets F) Current Assets: a) Current Investments b) Inventories c) Trade Receivables d) Cash and Bank Balances e) Short Term Loans and Advances f) Other Current Assets Sub -Total Current Assets TOTAL ASSETS (E +F)

10 Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 31 st Mar, 2013 to 31 st Dec, 2013E Value(Rs.in.mn) 31-Mar June Sep Dec-13E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face value EPS

11 Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) EBITDA Margin (%) PBT Margin (%) PAT Margin (%) P/E Ratio (x) ROE (%) ROCE (%) Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts

12 OUTLOOK AND CONCLUSION At the current market price of Rs.95.05, the stock P/E ratio is at 8.90 x FY14E and 7.81 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 20% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 8.93 x for FY14E and 8.82 x for FY15E. Price to Book Value of the stock is expected to be at 1.41 x and 1.20 x respectively for FY14E and FY15E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. INDUSTRY OVERVIEW India has the world s fifth-largest electricity generation capacity and demand is expected to surge in the coming years owing to growth in the economy. The power sector is high on India's priority as it offers tremendous potential for investing companies based on the sheer size of the market and the returns available on investment capital. The Indian power sector is one of the most diversified sectors in the world. Power in India is generated from commercial sources like coal, lignite, natural gas, oil, hydro and nuclear power as well as other viable nonconventional sources like wind, solar, agriculture and domestic waste. The demand for electricity in the country has been growing at a rapid rate and is expected to increase further in the years to come. In order to meet the increasing requirement of electricity, massive addition to the installed generating capacity in the country is required. The country offers unlimited growth potential for solar photovoltaic (PV) industry as well. India is endowed with vast potential of solar energy and is quickly developing itself as a major manufacturing hub for solar power plants. Besides, it is expected that, the annual PV-installed capacity will grow at a compound annual growth rate (CAGR) of around 49.5 per cent during to reach 1,500 megawatt (MW) by the end of Market Size Electricity production in India stood at terra watt hour (TWh) in FY13, a four per cent growth over the previous fiscal. Over FY07 13, electricity production has expanded at a CAGR of 5.5 per cent. The Planning

13 Commission s 12 th Plan projects that total domestic energy production would reach million tonnes of oil equivalent (MTOE) by and 844 MTOE by As of April 2013, total thermal installed capacity stood at gigawatt (GW), while hydro and renewable energy installed capacity totalled 39.6 GW and 27.5 GW, respectively. Nuclear energy capacity remained broadly constant from that in the previous year, at 4.8 GW. For the 12 th Five-Year Plan, a total of 88.5 GW of power capacity addition is targeted, of which 72.3 GW constitutes thermal power, 10.8 GW of hydro power and 5.3GW of nuclear power. The capacity addition target for is 1,198 MW of hydro power, 15,234 MW of thermal power and 2,000 MW of nuclear power. Total capacity target is 18,432 MW. Investments The investment climate is very positive in the power sector. Due to surge in the sector, the power sector has witnessed higher investment flows than envisaged. The Ministry of Power has set a target for adding 76,000 MW of electricity capacity in the 12 th Five Year Plan ( ) and 93,000 MW in the 13th Five Year Plan ( ). The industry attracted foreign direct investment (FDI) worth Rs 37, crore (US$ 6.01 billion) during April 2000 to July Some of the major investments made into the Indian power sector are as follows: Welspun Energy Ltd has launched a 55 MW solar plant in Rajasthan. The Rs 500 crore (US$ million) project, stated to be Asia's largest single-location solar plant Sterlite Grid has commissioned a 23 km 400 kilo volt (KV) double-circuit quad transmission line connecting Purnia and Bihar Sharif district substations in Bihar, with an investment of Rs 500 crore (US$ million) NHPC Ltd plans to take over private hydropower projects and is ready to invest equity worth Rs 20,000 crore (US$ 3.22 billion) over the next five years Suzlon Energy has won orders to supply wind turbines totalling 48 MW from French energy company Valorem Sanofi India has signed an agreement with Suzlon Energy Ltd (SEL) for a 2.1 MW offsite windmill installation, to generate renewable power for captive consumption at its Ankleshwar manufacturing site GE Energy Financial Services India has invested Rs 257 crore (US$ million) in the hydropower project developed by Gati Ltd in Sikkim

14 Government Initiatives The Government of India has set a target to generate 10,000 MW of power through solar energy by The Phase I of the Jawaharlal Nehru National Solar Mission has been very successful, wherein 1,685 MW of solar power was generated according to Union Ministry of New and Renewable Energy, Government of India. In order to attract foreign investments in the power sector, FDI up to 100 per cent is permitted under the automatic route for projects of electricity generation (except atomic energy), transmission, distribution and power trading. Under the Union Budget , the government plans to construct a transmission system from Srinagar to Leh at an investment of Rs 1,840 crore (US$ million). Some of the initiatives taken by the Government of India to boost the power sector are: To facilitate flow of renewable energy into the national grid, the Government of India plans to roll out Rs 43,000 crore (US$ 6.93 billion) 'green energy corridor' project Ministry of Power and Ministry of Water Resources have drawn up a framework for speedy technical clearances to power projects by Central Electricity Authority (CEA) and Central Water Commission (CWC) The Government of India plans to set up 4,000 MW of solar thermal power capacity in Rajasthan. "We have discussed the plant with the Rajasthan government and we aim to set up a solar thermal capacity near the Sambhar salt lake in Jaipur," said Mr Farooq Abdullah, Union Minister for New and Renewable Energy, Government of India India plans to strengthen its ties with Iraq in the energy sector. A formal memorandum of understanding (MoU) on cooperation in the sector would be signed during the four-day visit of Mr Nouri al-maliki, Prime Minister of Iraq, to India The Government of United Kingdom (UK) has agreed in principle to share the best practices with the Government of Andhra Pradesh (AP) in energy efficiency and energy conservation initiatives Hydro Projects worth 2,500 MW across various states have been given clearance by the Forest Advisory Committee (FAC) and Ministry of Environment and Forest (MoEF) Road Ahead Renewable energy is fast emerging as a major source of power. Wind energy is the largest source of renewable energy in India; it accounts for an estimated 87 per cent of total installed capacity in renewable energy. The country aims to increase the importance of wind power even further; there are plans to double wind power generation capacity to 20 GW by 2022.

15 Biomass is the second largest source of renewable energy, accounting for 12 per cent of total installed capacity in renewable energy. There is strong upside potential in biomass in the coming years. Solar energy accounts for one per cent of total renewable energy installed capacity. However, the share is not indicative of the country s true potential, which stands at an estimated 5,000 TWh per annum. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

16 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods Ashish.Kushwaha IT, Consumer Durable & Banking Anil Kumar Diversified Suhani Adilabadkar Diversified M. Vinayak Rao Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com