Power Grid
BSE SENSEX
49,719
S&P CNX
14,634
3 May 2021
Update | Sector: Utilities
CMP: INR221
TP: INR255 (+15%)
Monetization plans set to take off
Providing a means for asset monetization
Buy
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
PWGR IN
5,232
1151.7 / 15.6
239 / 153
1/3/-13
2287
48.7
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
394.3 411.1 441.9
EBITDA
346.2 365.0 393.1
Adj. PAT
110.6 124.7 135.1
EBITDA Margin (%) 87.8 88.8 89.0
Cons. Adj. EPS (INR) 21.1 23.8 25.8
EPS Gr. (%)
10.2 12.7 8.4
BV/Sh. (INR)
123.7 132.4 144.0
Ratios
Net D:E
2.2 2.1 1.8
RoE (%)
17.9 18.6 18.7
RoCE (%)
7.9 8.3 8.9
Payout (%)
54.1 59.8 60.6
Valuations
P/E (x)
10.4 9.3 8.6
P/BV (x)
1.8 1.7 1.5
EV/EBITDA(x)
7.5 7.1 6.4
Div. Yield (%)
4.5 5.9 6.4
FCF Yield (%)
17.3 14.8 21.7
Shareholding pattern (%)
As On
Mar-21 Dec-20 Mar-20
Promoter
51.3
51.3
51.3
DII
13.8
15.5
16.7
FII
28.4
26.7
27.0
Others
6.5
6.4
5.0
FII Includes depository receipts
Stock Performance (1-year)
Power Grid Corpn
280
240
200
160
120
Sensex - Rebased
The launch of Power Grid (PWGR)’s InvIT marks the start of monetization
plans for its tariff-based competitive (TBCB) projects. The initial InvIT
would house five transmission projects (gross block: INR72b). For PWGR,
the same accounts for 3% of its total gross block and hence the value
accretion is not large. We had valued these five assets at INR36b. Against
this, we see a potential realized value of INR53b – INR27b from offer for
sale, INR13.7b of a 15% stake in InvIT, and ~INR12b est. value for a 26%
stake in SPVs – implying an INR3/sh accretion.
Nevertheless, the InvIT provides a strong means for recycling as a)
incremental orders within the sector are largely on a TBCB basis and b)
PWGR has a healthy portfolio of 11 under-construction TBCB assets (cost:
INR108b). Additionally, the co. has three other projects operationalized
and has recently won five packages under the RE transmission scheme in
Rajasthan – thereby leading to a potential monetization pipeline for
another INR235b worth of projects.
Regulated tariff mechanism (RTM) assets, though, continue to be the
mainstay for the co. RTM would account for 92% of the co.’s gross block in
FY23 (post-InvIT: 94%). These assets are governed by CERC regulations,
including RoEs, and are thus subject to changes in the same. Tariffs in the
case of TBCB are more predictable and bid out in advance. PWGR noted
that it could look at the option of transferring the RTM assets, but this
looks unlikely in the near term, with the focus on monetizing its TBCB
pipeline.
InvIT – expect initial IRRs at 9%, yield at 11–12%
The five assets transferred to the InvIT provide a steady stream of cash
flow and have been operational for the past 2–4 years – thereby implying
another 31–33 years of life under the transmission service agreement
(TSA). PWGR would retain a 26% stake in the individual SPVs until the
lock-in period (five years from CoD).
The offer sets the valuation of the InvIT at INR91b, with an issue size of
INR77.4b; PWGR holds a 15% stake in the InvIT. Of the total proceeds,
INR27b is an offer for sale from PWGR, while INR50b would be used to
repay the debt of the SPVs. The InvIT is projected to generate cash flow
from operations of INR11–12b p.a. over FY22–24. We believe the InvIT
could provide yield of 11–12% in the initial years, with overall IRR of ~9%.
However, there remains a robust growth opportunity, with the ability to
leverage at the InvIT level and improve IRR – given an INR235b pipeline at
the sponsor (PWGR).
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.