Power Grid Corporation of India Ltd.

Transcription

1 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 June 21, 2016 MANAGEMENT COMPANY VISIT REPORT NOTE Nifty: 8,238; Sensex: 26,867 CMP Rs157 Key Stock Data Sector Power Bloomberg/Reuters PWGR IN / PGRD.BO Shares o/s (mn) 5,232 Market cap. 819,070 Market cap. (US$ mn) 12,156 3-m daily average vol. 351,631 Price Performance 52-week high/low Rs158/121-1m -3m -12m Absolute (%) Rel to Sensex (%) Shareholding Pattern (%) Promoters 57.9 FIIs/NRIs/OCBs/GDR 26.3 MFs/Banks/FIs 8.5 Non Promoter 3.5 Public & Others 3.7 Relative to Sensex PWGR Source: Capitaline Sensex Power Grid Corporation of India Ltd. Dotted all i's and crossed all t's! Table: Financial snapshot NOT RATED We met Power Grid Corporation of India (POWGR IN). Should POWGR keep up the ante, we will not be surprised if Govt. accords the company with Maharatna status. Further, increasing bandwidth of work be it commissioning of world s longest 800 kv HVDC multi-terminal or increasing geographical footprint this company has added many feathers to its cap. However, with draft regulations due from Central Electricity Regulatory Commission, a doubleedged sword for regulated asset-base model, we discern a cautious tone. Visit takeaways and Investment rationale Is POWGR on its way to be Maharatna? Arguably, yes. In FY16, POWGR has completed the highest ever capitalization of Rs317 bn. Further, company has achieved highest ever commissioning of 13,717 transmission line circuit kilometers. The revenue has surpassed Rs200 bn plus threshold a critical factor for achieving Maharatna status. With steady-state stream of revenue, thanks to long-dated infrastructure and regulated-asset base model, POWGR is on its way to be a Maharatna. This is not to say revenue is the sole parameter. While ticking few more boxes, we could not deny with the management that POWGR is on its way to be Maharatna. If accorded, company gains more operational autonomy. Increasing bandwidth of work: POWGR has achieved commendable feat in commissioning world s longest 800 kv HVDC multi-terminal. While making use of South Asian association of regional co-operation, projects in Nepal and Bangladesh is completed and operational. Notwithstanding the domestic monopoly, this paves the way for POWGR to don the cap of a regional player. Further, with 400kV D/C Khammam Nagarjunasagar project commissioned, TBCB route yields a promising outlook. That said, we are not a big fan of TBCB model. And here is the reason why: In our observations, the equity IRR for non-regulated transmission projects across industry is appalling. Yet we do not deny a sweeping generalization can prove us wrong. Performance in Non-core sectors: First, consultancy. POWGR is working on 13 different assignments. Some of them includes: 2nd Block of 1x500MW HVDC B2B Stn. at Bheramara; CASA-0 Project; Assignments from ADB & World Bank in Nepal; Trans. Infrastructure works in Kenya. Second, Telecom. The services in Telecom domain includes: dedicated lease lines, Internet, MPLS-VPN, Dark Fiber. And the typical clientele includes: Telecom operators, Government departments and IT companies. In FY16, the income is up by 43%. The total order book is Rs21 bn. Is POWGR the best way to play the power value chain? Perhaps, Yes. We draw comfort from stable business model. As storm clouds loom around over private power companies saddled with debt, discom reforms and power generation moving at a tepid pace, Power Grid ostensibly assures a non-volatile business model. With market share over 40%, Powergrid is a central transmission utility that commands transmission lines in excess of 127,539 kms. Substations are in excess of 248,164 MVA. Being a regulated state-owned enterprise, the scope of value-addition significantly in excess of cost of equity is limited. Yet at the turbulent times when rhetoric is not matched with reality, this stands as a bright spot. Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) P/E (x) EV/EBITDA (x) RoE (%) RoCE (%) FY13 131, , , FY14 156, , , FY15 176, , , FY16 213, , ,

2 So is the outlook positive? Yes. A business model that is bereft of idiosyncrasies solely gains from systemic moves. Consider this: three systemic moves have made commissioning transmission projects easier: First, swifter forest clearance process. Second, new guidelines in October 2015 for right of way in compensation. And third, early recognition to project completion is no longer a myth. Further, the ongoing projects are Rs940 bn. With new projects of Rs340 bn and TBCB projects of Rs160 bn, the total work in hand is Rs1.44 tn. Outlook and valuation Though we have a positive outlook, we do not cover the stock. And hence, we refrain from any valuations and recommendations. Risks: Regardless of the systematic risk hovering around Indian energy space, we identify idiosyncrasies that could spoil the thesis: a) adverse change in tariff by regulators; b) slow pace of existing projects; and c) possible equity dilution risk with higher debt. Table: Projects in FY17 Transmission Lines Sub-station Inter-regional Capacity Gaya-Varanasi, Varanasi-Kanpur-Jhatikara NP Kunta Gaya-Varanasi Pachkula-Patiala; Sikar-Jaipur Salem (Dharmapuri) Champa-Kurukshetra Aurangabad-Boisar; Navsari-Boisar; Kala-Kudus Navi Mumbai (GIS) Angul-Srikakulam Raipur PS - Wardha-Aurangabad Kanpur (GIS) Wardha-Nizamabad Dehradun-Baghpat, Roorkee-Saharanpur, Pandiabil (GIS) Biswanath-Chariyali Pasighat Roing Tezu - Namsai Rajarhat (GIS) Alipurduar Agra 800kV Champa-Kurukshetra HVDC Saharanpur Aurangabad-Padghe Bagpat (GIS) Mauda-Betul-Khandwa-Indore Dehradun Wardha-Aurangabad (1200kV tower) Betul (GIS) Ranchi-Chandwa-Gaya Chandwa (GIS) Tiurnelveli-Tuticorin; Tuticorin-Salem-Madhugiri; Vemagiri (GIS) Salem-Somnahalli; Madhugiri-Yelhanka Srikakulam (GIS) Jabalpur-Orai-Aligarh Nizamabad Wardha-Nizamabad-Hyderabad Roing Angul-Srikakulam; Tezu Dulhasti-Kishenpur-New Wanpoh Namsai Rajarhat-Purnea Alipurduar HVDC Singrauli-Allhabad-Kanpur; Lucknow-Kanpur Champa HVDC LILOs- Pandiabil (Baripada-Mendhasal); Navi Kurukshetra HVDC Table: Annual Capex plan forecasted clearly achieved (Rs bn) Planned Outlay between FY12-FY17 FY12-13 FY13-14 FY14-15 FY15-16 FY Achieved Status Achieved Achieved Achieved Achieved? Table: TBCB Project details Project Name Completion Annualized levelised Transmission Charges POWERGRID NM Trans. Ltd. (Mar-12) Oct Construction under Progress POWERGRID Vizag Trans. Ltd. (Aug-13) Aug-16 2,310 1st element commissioned in Dec-15. POWERGRID Unchahar Trans. Ltd. (Mar-14) Sep Construction under Progress POWERGRID Kala Amb Trans. Ltd. (May-14) Jul Construction under Progress POWERGRID Jabalpur Trans. Ltd. (Feb-15) Jul-18 2,110 Construction under Progress POWERGRID Warora Trans. Ltd. (Apr-15) Nov-17 2,900 Construction under Progress POWERGRID Parli Trans. Ltd. (Apr-15) Jan-18 2,570 Construction under Progress POWERGRID Southern I/C Trans. Ltd. (Dec-15) Apr-19 3,590 Construction under Progress 2

3 (Rs bn) (Rs bn) (Rs bn) Management Visit Note Power Grid Corporation of India Ltd. Figure: Investment led Asset Growth Gross Fixed Assets (Rs bn) Gross Fixed Assets + Work in Progress (Rs bn) Figure: Led to consistent increase in ISTS Infra TL ('000 ckm) X-fm ('000 MVA) S/S Nos. Figure: Revenue grew by 19% CAGR over five years Total Revenue Figure: Profit after tax mimicked a similar growth Profit after tax Figure: CWIP management Const. Stroes and Advances CWIP (Installed) Figure: and thrust on capitalization led in project efficiency % % 69% % % % % 50% 0% Capex Capitalization Capitalization-capex ration 3

4 Financial summary Profit & Loss Account Cash Flow Statement Net sales 131, , , ,523 Growth (%) Operating expenses (25,201) (30,650) (33,581) (27,476) EBITDA 106, , , ,047 Growth (%) Depreciation (34,278) (40,794) (51,733) (63,022) EBIT 72,160 85,311 91, ,025 Interest paid (25,994) (32,537) (40,812) (50,860) Other income 9,727 7,735 7,792 3,708 Pre-tax profit 55,892 60,509 58,251 75,874 Tax (14,630) (18,114) (13,579) (15,728) Effective tax rate (%) Net profit 41,262 42,395 44,673 60,146 Adjusted net profit 41,309 42,739 44,992 60,146 Growth (%) Shares o/s (mn nos) 4,630 5,232 5,232 5,232 Balance Sheet Net fixed assets 978,426 1,243,207 1,448,723 1,408,921 Investments 5,864 4,234 2,196 2,196 Other non-curr assets 4,614 (17,129) (20,543) (20,543) Current assets 72,457 95,157 87, ,726 Inventories 5,531 7,137 7,390 8,482 Sundry Debtors 14,914 16,183 22,070 28,211 Cash and Bank 26,789 49,744 29,886 35,861 Loans and advances 25,224 22,093 27,693 50,172 Total assets 1,061,361 1,325,470 1,517,415 1,513,300 Shareholders' funds 264, , , ,768 Share capital 46,297 52,316 52,316 52,316 Reserves & surplus 217, , , ,452 Total Debt 692, , , ,191 Secured loans 663, , , ,220 Unsecured loans 29,081 71,064 61,079 54,971 Curr Liab & prov 104, , , ,342 Current liabilities 97, , , ,302 Provisions 7,968 9,907 11,763 14,040 Total liabilities 797, ,490 1,133,028 1,072,533 Total equity & liabilities 1,061,361 1,325,470 1,517,415 1,513,300 Book Value (Rs) Pre-tax profit 55,892 60,509 58,251 75,874 Depreciation 35,923 42,342 53,161 63,022 Tax paid (10,826) (18,114) (13,579) (15,728) Chg in working capital 20,565 31,554 22,559 6,036 CF from operations (a) 116, , , ,203 Capital expenditure (241,258) (307,124) (258,677) (23,219) Chg in investments 1,873 1,629 2,039 - CF from investing (b) (220,840) (266,391) (241,847) (23,219) Equity raised/(repaid) - 6, Debt raised/(repaid) 148, , ,238 (96,243) Dividend (incl. tax) (2,961) (2,962) (2,964) (3,765) CF from financing (c) 99, ,121 63,988 (,009) Net chg in cash (a+b+c) (4,325) 22,955 (19,858) 5,975 Financial Ratios Adj EPS (Rs) Adj EPS growth (%) EBITDA margin (%) Pre-tax margin (%) ROE (%) ROCE (%) Turnover & Leverage ratios (x) Asset turnover Leverage factor Net margin (%) Net Debt/Equity Working Capital & Liquidity ratios Inventory days Receivable days Payable days 1,405 1,505 1,726 2,555 Valuations PER (x) Price/Book value (x) PCE (x) EV/Net sales (x) EV/EBITDA (x) Dividend Yield (%)

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