RESULTS REVIEW 4QFY16

30 MAY 2016

Power Grid Corporation

BUY
INDUSTRY
CMP (As on 27 May 16)
Target Price

POWER
Rs 151
Rs 179

Nifty

8,157

Sensex

26,654

KEY STOCK DATA

Bloomberg

PWGR IN

No. of Shares (mn)

5,232

MCap (Rs bn) / ($ mn)

789/11,771

6m avg traded value (Rs mn)

633

STOCK PERFORMANCE (%)

52 Week high / low

Rs 152/121

3M

6M

12M

Absolute (%)

12.9

13.0

5.3

Relative (%)

(2.2)

11.0

8.6

SHAREHOLDING PATTERN (%)

Promoters
FIs & Local MFs
FIIs
Public & Others
Source : BSE

Maulik Doshi
maulik.doshi@hdfcsec.com
+91-22-6171-7325

57.90
8.92
25.68
7.50

Visible growth = Visible value

PGCILs 4QFY16 APAT at Rs 15.3bn (11% YoY
growth) was marginally below estimates, led by
higher interest expenses (higher-than-estimated
debt). Capitalisation of Rs 318bn for FY16 was a
positive surprise (the management indicated Rs
303bn earlier). The key takeaway of the analyst
meet was a roadmap for capex and capitalisation.
An average annual capitalisation of ~Rs 300bn is
likely to continue over the next four years. This
provides visibility of healthy earnings growth over
the next five years and addresses any concerns
related to significant tapering of earnings growth.
Maintain BUY with a revised TP of Rs 179 1.7x P/B
of FY18E).

Thrust on capitalisation to continue:

The
management guided for capex and capitalisation
of Rs 225bn and Rs 310bn for FY17E. As on 1Apr-16, PGCIL had projects worth ~Rs 1,440bn in
hand, which are likely to be commissioned in the
next four years. Any further work that PGCIL gets
either though nomination or TBCB (tariff-based
Financial Summary
Year Ending March (Rs bn)
Net Sales
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
P/B(x)
RoE

4QFY16
57.60
51.41
16.47
3.15

Source: Company, HDFC sec Inst Research

4QFY15
47.03
3.97
13.88
2.65

YoY (%)
22
0
19
19

competitive bidding route) will be over and

above this.
Maintain Buy: We revise our estimates to factor
in (1) Capitalisation of Rs 300/280bn for
FY17/18E each (earlier estimated at Rs
280/225bn for FY17/18E) and (2) Trends from
4QFY16 results. Our revised TP is Rs 179 (1.7x
P/B of FY18E). Currently trading at 1.4x P/B of
FY18E, PGCIL deserves a better valuation given
its (1) Scarcity value (only play on the
transmission business with regulated RoE fixed
till FY19), (2) Government-driven capex aligned
with power infra build-out, and (3) High visibility
of earnings growth (EPS growth of 24/18% for
FY17/18E), along with healthy financials and
improving RoE (4) In an environment of easing
interest rates, PGCILs assured RoE business
model with cost pass through is compelling.

Near-term outlook: We expect strong earnings

growth momentum to continue in 1QFY17
supported by healthy capitalisation in 2HFY16.

3QFY16
54.07
47.97
16.14
3.09

QoQ (%)
7
7
2
2

FY15
171.77
147.98
49.50
9.46
15.9
2.1
13.6

FY16P
208.02
182.81
60.91
11.6
12.9
1.8
15.1

FY17E
261.38
230.37
75.38
14.4
10.5
1.6
16.5

FY18E
304.09
266.97
88.79
17.0
8.9
1.4
17.1

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>

PGCIL : RESULTS REVIEW 4QFY16

Analyst meet key takeaways

Improved outlook for capitalisation: The

management highlighted a roadmap for capex

and capitalisation. PGCIL confirmed work in hand
of Rs 1,440bn as on 1-Apr-16, which may be
commissioned in the next four years. Thus, the
trend of average annual capitalisation of Rs 30bn
is likely to continue going forward.

Work In Hand
(Rs bn)
Ongoing Projects
New Projects
TBCB Projects
Total

Value
940
340
160
1,440

Source: Company

North East-Agra HVDC project update: PGCIL has

started receiving money from SEBs for its North
East-Agra HVDC project post-CERCs order in

Mar-16. CERC has approved provisional tariff for

FY16 and FY17 based on 65% of the project cost.

First phase of Champa-Kurukshetra line (~Rs

65bn) is likely be commissioned by Aug-16.

Update on TBCB projects: First line of PGCILs

TBCB
project
400kv
D/C
KhammamNagarjunasagar
has
been
successfully
commissioned in 3QFY16. Overall, PGCIL has Rs
160bn of TBCB projects. Given it existing
workload, new projects are selected based on
the managements confidence of whether they
can be completed on time or not. Further, PGCIL
has flexibility to avail higher debt for TBCB
projects. PGCIL makes 15.5% RoE on any
regulated project. If one includes construction
period, equity IRR usually comes at ~13.5%. The
management is confident that PGCILs IRR for
TBCB projects will not be lower than this level.

Page | 2

PGCIL : RESULTS REVIEW 4QFY16

Quarterly Financials: Snapshot

(Rs mn)
Net Sales
Transmission Expenses
Employee And Other Expenses
EBITDA
Interest Cost
Depreciation
Other Income
PBT
Tax
Reported PAT
E/o items
Adj. PAT

4QFY16
57,601
4,648
2,665
50,288
14,773
17,847
2,014
19,681
4,341
15,991
(651)
15,340

4QFY15
47,032
3,880
2,815
40,337
10,375
14,181
2,063
17,845
3,966
14,126
(247)
13,879

YoY (%)
22

3QFY16
54,066
3,651
2,449
47,966
12,875
15,805
983
20,268
4,127
16,131
10
16,141

25

(2)

13
11

QoQ (%)
7

105

(1)
(5)

Source: Company, HDFC sec Inst Research

Margin Analysis
Material Expenses As % Of Net Sales
Employee Expenses As % Of Net Sales
Operating Margin (%)
Net Profit Margin (%)

4QFY16
8.1
4.6
87.3
27.8

4QFY15
8.2
6.0
85.8
30.0

YoY (bps)
-18
-136
154
-227

3QFY16
6.8
4.5
88.7
29.8

QoQ (bps)
132
10
-141
-208

Source: Company, HDFC sec Inst Research

Segmental Quarterly Performance

(Rs mn)
Segmental Revenues
- Transmission
- Consultancy
- Telecom
Total (After Deducting Inter-segment Revenue)
Segmental EBIT
- Transmission
- Consultancy
- Telecom
Total
Segmental Margins (EBIT) (%)
- Transmission
- Consultancy
- Telecom

4QFY16 4QFY15 YoY (%) 3QFY16 QoQ (%)

56,050
1,674
1,167
58,774

45,586
1,544
884
47,922

23
8
32
23

52,445
1,153
1,137
54,626

32,816
1,325
244
34,385

25,794
1,178
322
27,294

27
12
(24)
26

31,396
773
542
32,711

56.6
196
76.3
281
36.4 (1,547)

59.9
67.1
47.7

58.5
79.1
20.9

FY16

FY15 YoY (%)

7 201,831 167,424
45
4,733
3,877
3
4,359
3,010
8 210,497 174,067
5 119,190
71
3,406
(55)
1,626
5 124,221
(132)
1,203
(2,673)

59.1
71.9
37.3

21
22
45
21

95,792
2,528
633
98,954

24
35
157
26

57.2
65.2
21.0

184
674
1,625

Source: Company, HDFC sec Inst Research

Page | 3

PGCIL : RESULTS REVIEW 4QFY16

Projects To Be Commissioned in FY17

Source: Company

Change In Estimates
(Rs bn)
Capex
Capitalisation
Revenue
EBITDA
PAT
BVPS

Old
FY17E
225
280
257
226
75
91

FY18E
225
225
295
259
87
103

New
FY17E
225
300
261
230
75
93

FY18E
230
280
304
267
89
106

Change
FY17E
0%
7%
2%
2%
0%
2%

FY18E
2%
24%
3%
3%
2%
3%

Source: Company, HDFC sec Inst Research

Page | 4

PGCIL : RESULTS REVIEW 4QFY16

PGCIL 1-year Forward P/B

The stock currently trades at a

valuation of 1.6x one-year
forward P/B, near one
standard deviation below
historical mean

Source: Company, Bloomberg, HDFC sec Inst Research

PGCIL 1-year Forward P/E

Source: Company, Bloomberg, HDFC sec Inst Research

Page | 5

PGCIL : RESULTS REVIEW 4QFY16

Income Statement

Balance Sheet

(Rs mn)
FY14
FY15 FY16E FY17E FY18E
Net Revenues
152,303 171,772 208,022 261,382 304,089
Growth (%)
21.6
12.8
21.1
25.7
16.3
Transmission and Other Expenses
13,323 13,552 15,409 20,031 25,039
Employee Expenses
9,417 10,237
9,805 10,982 12,080
Total Expenses
22,739 23,788 25,214 31,013 37,119
EBIDTA
129,563 147,984 182,808 230,369 266,970
EBIDTA %
85.1
86.2
87.9
88.1
87.8
EBIDTA Growth %
21.0
14.2
23.5
26.0
15.9
Depreciation
39,957 50,854 61,828 76,747 87,003
EBIT
94,518 103,158 127,064 158,122 184,467
Other Income (Including EO Items)
4,911 6,028
6,084 4,500 4,500
Interest
31,675 39,793 50,230 63,305 72,783
PBT
62,843 63,365 76,835 94,817 111,684
Tax
17,663 13,394 15,920 19,438 22,895
RPAT
45,179 49,971 60,915 75,380 88,789
EO (Loss) / Profit (Net Of Tax)
205
471
647
APAT
44,974 49,500 60,915 75,380 88,789
APAT growth %
15.9
10.1
23.1
23.7
17.8
Adjusted EPS (Rs)
8.6
9.5
11.6
14.4
17.0
EPS growth %
2.6
10.1
23.1
23.7
17.8

(Rs mn)
FY14
FY15
FY16E
SOURCES OF FUNDS
Share Capital
52,316
52,316
52,316
Reserves
292,280 329,350 375,024
Total Shareholders
344,596 381,666 427,340
Funds
Minority Interest
Deferred Revenue
45,175
47,629
57,239
Long-term Debt
767,902 893,758 1,002,398
Short-term Debt
63,796
56,687
75,447
Total Debt
831,699 950,446 1,077,844
Deferred Taxes
24,430
24,722
24,894
Long-term Provisions &
18,617
16,781
19,884
Others
TOTAL SOURCES OF
1,264,516 1,421,243 1,607,200
FUNDS
APPLICATION OF FUNDS
Net Block
907,794 1,027,282 1,152,477
CWIP
318,514 398,822 437,202
Goodwill
Investments
9,987
9,264
8,069
LT Loans & Advances
70,750
70,194
87,080
Inventories
7,124
7,178
8,237
Debtors
15,785
21,187
27,380
Other Current Assets
21,763
28,453
39,308
Cash & equivalents
44,175
20,630
24,537
Total Current Assets
88,847
77,447
99,462
Creditors
3,291
3,930
3,139
Other Current Liabilities
128,084 157,836 173,950
& Provisions
Total Current Liabilities
131,375 161,766 177,089
Net Current Assets
(42,529) (84,319) (77,628)
TOTAL APPLICATION OF
1,264,516 1,421,243 1,607,200
FUNDS

Source: Company, HDFC sec Inst Research

FY17E

FY18E

52,316
432,312

52,316
499,792

484,628

552,108

62,962
69,259
1,063,861 1,147,812
83,363
90,206
1,147,224 1,238,018
24,894
24,894
22,867

25,153

1,742,575 1,909,432
1,376,168 1,569,165
362,202 312,202
8,069
91,434
10,922
32,239
43,239
15,958
102,358
4,338

8,069
100,577
12,706
37,507
47,563
39,339
137,115
5,047

193,317

212,649

197,655
(95,297)

217,696
(80,581)

1,742,575 1,909,432

Source: Company, HDFC Sec Inst Research

Page | 6

PGCIL : RESULTS REVIEW 4QFY16

Cash Flow Statement

(Rs mn)
FY14
FY15
FY16E
FY17E
FY18E
Reported PBT
62,843
63,365
76,835
94,817 111,684
Non-operating & EO items
(4,911) (6,028) (4,790) (4,500) (4,500)
Interest
31,675
39,793
50,230
63,305
72,783
Depreciation
39,957
50,854
61,828
76,747
87,003
Working capital change
45,275
16,965 (16,567)
7,720
1,808
Tax Paid
(17,663) (13,394) (15,920) (19,438) (22,895)
Other operating items
12,837
2,746
9,782
5,724
6,296
OPERATING CASH FLOW (a) 170,012 154,301 161,397 224,375 252,179
Capex
(304,023) (250,650) (225,403) (225,437) (230,000)
Free Cash Flow
(134,011) (96,349) (64,005) (1,062)
22,179
Investments
1,499
733
8,069
8,069
8,069
Non-operating Income
4,911
6,028
4,790
4,500
4,500
INVESTING CASH FLOW (b) (297,612) (243,888) (217,333) (217,368) (221,931)
Debt Issuance/(Repaid)
149,820 118,747 127,399
69,380
90,794
Interest
(31,675) (39,793) (50,230) (63,305) (72,783)
FCFE
(15,866) (17,395)
13,164
5,012
40,190
Share Capital Issuance
52,966
Dividend
(13,911) (12,320) (14,502) (18,091) (21,309)
FINANCING CASH FLOW (c) 157,200
66,634
62,667 (12,016) (3,298)
NET CASH FLOW (a+b+c)
29,600 (22,954)
6,731 (5,010)
26,950
Closing cash
44,175
20,630
24,537
15,958
39,339
Source: Company, HDFC sec Inst Research

Key Ratios
PROFITABILITY %
GPM
EBITDA margin
APAT margin
RoE
Core RoCE
RoCE
EFFICIENCY
Tax rate %
Fixed Asset Turnover (x)
Inventory (days)
Debtors (days)
Payables (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E (x)
Interest Coverage (x)
PER SHARE DATA (Rs)
EPS
CEPS
Dividend
Book Value
VALUATION
P/E
P/BV
EV/EBITDA
EV/Revenues
OCF/EV (%)

FY14

FY15

FY16E

FY17E

FY18E

91.3
85.1
29.5
14.8
6.1
6.6

92.1
86.2
28.8
13.6
6.2
6.5

92.6
87.9
29.3
15.1
6.8
7.1

92.3
88.1
28.8
16.5
7.6
7.9

91.8
87.8
29.2
17.1
8.2
8.4

28.1
0.2
17.1
37.8
7.9
47.0
6.4
2.3
3.0

21.1
0.1
15.3
45.0
8.4
51.9
6.4
2.4
2.6

20.7
0.1
14.5
48.0
5.5
57.0
5.9
2.5
2.5

20.5
0.1
15.3
45.0
6.1
54.2
5.0
2.3
2.5

20.5
0.1
15.3
45.0
6.1
54.2
4.6
2.2
2.5

8.6
16.2
2.3
65.9

9.5
19.2
2.0
73.0

11.6
23.5
2.3
81.7

14.4
29.1
2.9
92.6

17.0
33.6
3.4
105.5

17.5
2.3
12.2
10.3
10.8

15.9
2.1
11.6
10.0
9.0

12.9
1.8
10.1
8.9
8.8

10.5
1.6
8.3
7.3
11.7

8.9
1.4
7.4
6.5
12.7

Source: Company, HDFC sec Inst Research

Page | 7

PGCIL : RESULTS REVIEW 4QFY16

RECOMMENDATION HISTORY
Date
13-May-16
30-May-16

TP

Power Grid
180

CMP
142
151

Reco
BUY
BUY

Target
175
179

160
140
120

Rating Definitions
May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

100

BUY

: Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL

: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 8

PGCIL : RESULTS REVIEW 4QFY16

Disclosure:
I, Maulik Doshi, MBA author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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Page | 9