Power Grid Corporation: Strong earnings growth to sustain

6 October 2015

Power Grid Corporation

BSE Sensex

26,933

S&P CNX

8,153

Update | Sector: Utilities

CMP: INR132

TP: INR173 (+31%)

Buy

Strong capitalization to drive 14% PAT CAGR

Higher project leverage to bridge equity gap; Buy – 31% upside

Robust outlook on investment in transmission:

Investment in power

generation has seen exponential growth. Despite corresponding growth in

transmission line investments, constraints remain. Grid failures have forced

reduction in carrying capacity. Power demand and generation have polarized

(while the southern region has had 32% share in all India peak load growth in

10 years, the western region has had 43% share in generation growth) due to

uneven disposition of energy resources. The Green Energy Corridor (GEC) has

added to transmission line demand. Sector investment is pegged at INR2.6t in

the 13th plan – a growth of 36% over the 12th plan.

PWGR on strong footing for both regulated and TBCB projects:

PWGR has

enjoyed near monopoly in developing inter-state inter-region (ISIR) capacity,

while projects on tariff-based competitive bids (TBCB) have been rather few.

Under the 13

plan, the total investment in ISIR capacity is pegged at

INR1.65t. Given PWGR’s stronghold in execution, GEC projects and high

voltage direct current (HVDC) projects are awarded to it on cost plus basis.

Given that private sector players have limited bandwidth, PWGR would

continue to have an edge. PWGR may have been aggressive in bidding for

TBCB projects and returns might be muted, such projects account for only ~5%

of assets (FY20E). PWGR is unlikely to be aggressive in future, in our view.

Robust capitalization to drive 14% earnings CAGR:

Regulated (standalone)

business has strong visibility of INR1.1t capex and INR1.5t capitalization (1.25x

FY15 gross block). This would drive RAB and PAT CAGR of 14% over FY15-22.

Internal generation of equity is improving, yet remains short of the permissible

limit of 30% in projects. An equity infusion of INR47b is required to bridge the

gap. Instead, PWGR is likely to reduce dividend payout and increase leverage.

TBCB projects’ combined equity IRR may be low, but their share in gross block

is only 4-5%. We expect 14.2% CAGR in consolidated EPS and 11.4% CAGR in

BV over FY15-22; RoE should expand 270bp to 16.6% by FY22E.

Strong earnings growth visibility; reiterate Buy:

PWGR has strong visibility of

earnings growth and is the best among regulated businesses. While NTPC and

NHPC have to maintain both PLF and PAF, PWGR has to maintain only PAF. It is

thus, less dependent on external factors. A dominant market position gives it

bargaining power over vendors and helps in working capital management.

Huge opportunity and shorter execution cycle ensure better realized RoE. We

value the stock at INR173/share based on DCFE. At INR173, the stock would

trade at a P/B of 2.1xFY16E – an upside of 31%. This is consistent with superior

business RoE of ~16% compared to cost of equity of ~10% and re-investment

opportunity. We reiterate

Buy.

6 October 2015

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap.(INR b)/(USD b)

AvgVal.INRm/Vol‘000

Free float (%)

PWGR IN

5,231.6

159/121

0/-4/-4

689.8/10.5

426/3,012

42.1

Financial Snapshot (INR Billion)

Y/E Mar

2015 2016E 2017E

Sales

EBITDA

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR )

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

176.6 215.2 257.1

151.3 186.0 224.6

50.9

9.7

10.9

73.5

13.9

7.9

24.7

13.6

1.8

10.7

1.5

58.8

11.2

15.7

82.6

14.4

8.3

19.3

11.7

1.6

9.4

1.4

70.2

13.4

19.2

93.8

15.2

9.0

16.3

9.8

1.4

8.3

1.4

Power Grid Corporation

Story in charts

Exhibit 1: Capex momentum remains strong (INR b)

Capex (INR b)

1,400

1,200

1,000

800

600

400

200

8th

9th

168

10th

452

11th

1,286

12th

1.6

2.0

Growth(x)

2.8

2.7

3.0

2.5

2.0

1.5

1.0

0.5

0.0

FY09

FY10

FY11

FY12

FY13

FY14

FY15 FY16E

144

135

212

126

255

Exhibit 2: Regulated project awards strong as well (INR b)

476

392

Source: MOSL, Company

Exhibit 3: Strong pending capitalization (INR b) …

a. Projects under progress at FY15 year end

b. of above, the spent amount

c. Outstanding projects at FY15 end (a-b)

d. Chhattisgarh Pugalur

f. GEC

g. included in (a)

h. GEC's balance order (f-g)

j. Outstanding capex

k. CWIP at FY15 year end

l. Pending for capitalization (j+k)

1,263

654

609

268

260

208

1,085

399

1,484

Exhibit 4: …will drive RAB & standalone PAT growth (INR b)

RAB

PAT

714

768

645

RAB and PAT to grow at cagr

573

501

of 14% over FY15-22E

429

373

305

215 253

136 178

113

Source: MOSL, Company

Exhibit 5: Regulated capex and capitalization (INR b)

Capex

300

172 159

218

240 240 240 240 230

180

Capitalization

Exhibit 6: Contribution of TBCB projects to GB marginal

TBCB gross block (INR b)

4.5

Share in Consolidated GB (%)

5.1

4.6

130

1.6

0.9

FY16E

Source: MOSL, Company

FY17E

FY18E

119

FY19E

119

FY20E

Source: MOSL, Company

Exhibit 7: Internal equity improving; yet near-term gaps

Div. payout (%)

PAT/Capex(%)

RE/Capex (%)

Regulatory limit (%)

Exhibit 8: Consolidated RoE to improve as CWIP/CE falls

CWIP/Cap Employed (%)

RoE (%)

Source: MOSL, Company

6 October 2015

CWIP excludes construction store

Source: MOSL, Company

Power Grid Corporation

Transmission investment remains in focus

Polarization between demand and generation, grid failure key drivers



Investments in power generation have grown exponentially. While the western region

(WR) has hogged the largest part (43%) of the generation capacity addition, the

southern region (SR) has been the largest driver (32% share) of peak demand growth

in the last 10 years. The uneven disposition of energy resources has polarized the

demand and consumption centers.

Despite pick-up of investments in transmission lines, constraints remain. Grid failures

have forced reduction in carrying capacity. Polarization of power demand and

generation has further spurred investments in transmission.

Total investments in the transmission sector in the 13th plan are pegged at INR2.6t – a

growth of 36% over the 12 plan.



Generation sector has seen massive investments…

De-licensing of the power generation sector has led to mushrooming of projects.

Capacity addition has increased from 16GW (3.3GW/year) in the 8

five-year plan

(FY92-97) to 55GW (11GW/year) in 11

plan (FY08-12). In the 12

plan (FY13-17E),

capacity addition is estimated at 89GW (18GW/year). In addition, ~60GW of projects

are already under construction as at March 2015, which would be added over FY18-

20. Total installed power capacity in India has gone up from 100GW+ as at the end

of FY01 to 235GW as at the end of FY15, and is likely to touch ~350GW by FY20.

Exhibit 9: Plan period wise capacity addition (MW)

Cum cap Addn

Per annum

11.0

4.3 3.3 3.9 4.2

2.8

2.0

Source: CEA, MoP, MOSL

155

102

17.7

235

Exhibit 10: Installed capacity in India (MW)

348

0.2 0.5 0.9 0.9

Plan period

…but, the center of gravity of generation has shifted away from demand…

New investments in

generation are closer to

energy sources

The western region (WR) was the key driver of capacity addition (43% of total

addition) over FY05-15, spurred by allocation of captive coal mines and success of

two UMPPs and Adani’s project of 4GW each. Peak demand, on the other hand,

grew most (32% of all India growth) in the southern region (SR). Very attractive

merchant power rates during FY08-FY11 discouraged many of new capacities at pit

head to get in long term PPA leaving them stranded for transmission capacities.

Though the northern region (NR) is well invested in generation, it is now looking to

source cheaper power from WR at the cost of keeping its capacities idle. This has

created additional need for transmission for the right reasons. It is cheaper to

produce power close to mines/port and transmit power as compared to

Economics driving

additional need for

transmission

6 October 2015

Power Grid Corporation

transporting coal more than 1,000km from mines/ports to the generation capacities

in NR. This has created an imbalance in generation capacities with respected to

demand centers, thereby creating transmission bottlenecks.

Exhibit 11: WR hogged 43% of capacity addition (FY05-15)…

NE etc

Exhibit 12: …while SR was driver of peak demand growth

NE etc

32%

21%

10%

25%

24%

43%

Source: CEA, MoP, MOSL

16%

26%

Source: CEA, MoP, MOSL

Coal mines are mostly in

central and eastern parts of

India, while load is

distributed across northern,

western and southern

regions

…due to uneven disposition of energy resources

New investments in generation have come closer to coal mines in Odisha,

Chhattisgarh, Madhya Pradesh, and Jharkhand. Large hydro projects are located far

off from load centers in Sikkim and the North East. Ultra mega power projects

(UMPPs) are either located on the coastline or closer to coal mines.

Exhibit 13: Energy sources in India

Source: Company

6 October 2015

Power Grid Corporation

Cost of power transmission

is far lower than cost of

transporting coal

Economics (total cost of delivered power) will determine the location of electricity

generation in the future, aided by plenty of redundancy in generation capacities.

The cost of transmitting electricity is declining with technological upgrade (system

losses are lower with higher MVA lines and they can carry larger amounts of

electricity), while the cost of transporting coal is increasing because of higher cost of

new rail infrastructure and general inflation. As such, there are bottlenecks in rail

freighting infrastructure. Transmission is less labor intensive than transporting coal.

Exhibit 14: High density of IPPs (red pointers) and CPP (green pointers) close to coal fields (black pointers)

Source: MOSL

Despite investments in transmission sector…

Projects with firm power purchase agreements (PPAs) were planned with back-to-

back arrangements for power offtake / transmission capacity. Such projects were

taken into account while planning for transmission lines. The transmission sector

has evolved from planning generation-linked network to developing high capacity

power transmission corridors (HCPTCs), which act as highways for wheeling power

from generation pockets.

6 October 2015

Power Grid Corporation

Exhibit 15: High capacity transmission corridor to facilitate smooth flow of power

State/Corridor

Orissa

Jharkhand & W Bengal

Bilaspur (Chattisgarh) & M Pradesh

Chattisgarh

Krishnapatnam (Andhra Pradesh)

Tuticorin (Tamil Nadu)

Sri Kakulam (Andhra Pradesh)

Total

LTOA: Long-term open access

Capacity

(MW)

10,090

2,820

4,370

15,385

5,760

2,520

2,640

43,585

LTOA

6,080

3,430

3,681

13,631

5,020

2,000

2,640

36,482

Source: Company, MOSL

Although transmission

capacity has kept pace with

growth in generation, the

redundancies have been

less; in 2012, the carrying

capacity of old lines was

reduced as a safety

measure

Exhibit 16: Transmission capacity has grown in line with growth in generation

Transmission capacity CAGR

Gen. capacity - CAGR

13.3%

11.1%

8.3%

5.5%

7.2%

4.7%

9.4%

10.8%

1985-02

2002-07

2007-15

Source: MOSL

…constraints remain

While projects with firm PPAs are largely assured of transmission corridor

availability, the mismatch in the time of commissioning generation and transmission

projects has led to small capacities with firm PPAs also feeling the pinch. For

instance, Tamil Nadu’s plan to source 900MW from the eastern region (two private

sector projects) was derailed when the Central Electricity Regulatory Commission

(CERC) gave preference to medium-term open access (MTOA) over long-term open

access (LTOA) application by eastern region power projects. This was because the

application for MTOA preceded LTOA by six months.

Also, a large part of open capacity (without PPAs) is not able to schedule power due

to want of transmission capacity, particularly on the short-term front. The bigger

irony is that while there is a demand in one pocket, and capacity in another, the

flow of power is not possible. The northern and southern regions continue to face

high peak deficit in YTDFY16. This is also partly led by downgrade in technical

capacity of transmission line after a blackout in 2012.

6 October 2015

Power Grid Corporation

Exhibit 17: Coal project PLF is dwindling

Exhibit 18: Peak deficit remains high in YTDFY16 (MW)

3292

1015

298

383

Source:

This is reflected in the congestion being faced by several projects. As per IEX, the

total generation lost due to grid constraints was 1.8BU in YTDCY15. The volume

cleared in relation to volume traded has declined from 94-95% in FY10-11 to 87-88%

over FY12-14, a result of the blackout in 2012. The total generation lost in FY15 was

to the tune of 3.1BU. While the transmission congestion can be partly attributed to

reckless capacity addition, the under-investment in transmission capacity cannot be

empathized more. Grid constraints have restrained the discovery of true market-

driven prices and are a threat to power projects with higher cost of generation.

Exhibit 19: ST volumes not cleared due to congestion on IEX (BUs)

Constrained Vol (BUs)

95%

100%

91%

94%

87%

Growth in constrained

volume post 2012 blackout

0.0

2008

0.5

2009

0.5

2010

0.9

2011

3.0

2012

88%

84%

5.5

2013

3.9

2014

1.8

2015

Source: IEX

91%

% Cleared

Exhibit 20: All India generation capacity to peak demand ratio (x)

1.9

Over-capacity in generation

demands more

redundancies in

transmission system

1.3

1.2

1.8

2005

2007

2008

2015

Source: MOSL, CEA

6 October 2015

Power Grid Corporation

plan inter-state capex target of INR1.6t; vision 2034 formulated

Investment in the transmission sector has lagged investment in the generation

sector. The Ministry of Power (MoP) has rolled out a draft “prospective transmission

plan for 20 years (2014-2034)” to address this. According to the draft, the total

investment in transmission in the 13

plan is pegged at INR2.6t, comprising of inter-

state transmission of INR1.6t and intra-state transmission of INR1t.

Exhibit 21: 13 plan investment target pegged at INR2.6t (INR b)

Intra-state

INR1t,

38%

Inter-State

INR1.6t,

62%

Source:

As per the transmission plan, the generation capacity is expected to move up from

367GW at the end of the 12

plan to 1,029GW by FY33-34. Total demand for power

is expected to move up from 200GW (including import/export to SAARC countries)

in FY17 to 616GW by FY33-34. The need for inter-regional transfer capacity based on

load analysis for various seasons is pegged at 74GW in FY17 (52.8GW is targeted

addition in 12

plan) to 198GW by FY33-34. This provides for strong long-term

visibility for the transmission sector in India.

Exhibit 22: Growth in inter-regional transmission capacity (MW)

11th plan 12th plan 13th plan 14th plan

2011-12 2016-17 2021-22 2026-27

12,130

25,230

35,730

40,000

4,390

12,790

21,190

25,000

3,630

7,830

12,030

15,000

4,220

16,920

32,520

35,000

1,520

7,920

22,320

25,000

1,260

2,860

27,150

73,550

126,650

142,860

15th plan

2031-32 2033-34

45,000

30,000

35,000

30,000

40,000

35,000

40,000

2,860

177,860 197,860

Source: MoP

East/NER - North

East - West

East - South

West - North

West - South

East - NER

Total

6 October 2015

Power Grid Corporation

Exhibit 23: Inter-regional links map

Source: MoP

6 October 2015

Power Grid Corporation

PWGR: Project awards on nomination continue

Aggressive TBCB bidding unlikely; concern over RoE dilution overdone



PWGR is a dominant player in ISIR transmission, with over 95% asset share. In the 12

plan, PWGR got 82% of projects worth INR1.4t on nomination basis.

PWGR would continue to receive projects on nomination basis. INR260b GEC would

largely be given to PWGR to cut short execution period to meet the requirements of

short-duration solar power projects. The INR268b Raigarh-Pugalur HVDC project has

been recently awarded to PWGR.

Of the INR2.6t 13 plan capex, the Ministry of Power is planning to award INR1t

projects under TBCB. Although PWGR may have been aggressive in the past, we see no

reason for it to be equally aggressive in the future because (1) it already has INR1.1t

projects pending execution, (2) cost of capital is much higher for private competition,

and (3) PWGR outsources project execution and O&M to private vendors, where it has

more bargaining power. We believe concerns over RoE dilution are overdone.



Near monopoly in inter-state/inter-region domain

Being a central transmission utility (CTU), PWGR has enjoyed monopoly in the inter-

state and inter-region (ISIR) domain, predominantly till the 12

plan (FY13-17E). Of

the total ISIR investment of INR1.4t in the 12

plan, projects executed by PWGR on

nomination/cost-plus basis stood at INR1.3t. This represents a 2.8x jump in ISIR

investment from the 11

plan, which was itself up 2x from the 10

plan. The

buoyancy in ISIR investment over various plan periods has seen PWGR growing its

asset base at a CAGR of 18% over FY02-15.

Exhibit 24: PWGR’s investment in plan period

Capex (INR b)

2.0

1.6

Growth(x)

2.7

2.8

Exhibit 25: Growth in gross block

2,000

1,500

1,000

500

Gross Block (INR b)

5-yr rolling CAGR (%)

17 18

15 15 15

8th

9th

168

10th

452

11th

1,286

12th

Source: MoP, CEA, MOSL, Company

PWGR’s monopoly in inter-state and inter-regional (ISIR) projects is diluted, given

the guidelines to put projects through tariff-based competitive bidding (TBCB).

Growth in ISIR capex/investment in the 13

plan over the 12

plan is 19%, albeit on

a higher base. Intra-state capex is likely to grow at a robust 82%. Under the 13

plan, PWGR’s growth in capex investment hinges on (a) share of nomination projects

in ISIR capex, (b) success in TBCB projects for ISIR capex, and (c) participation in

state projects.

plan investment opportunity high

6 October 2015

Power Grid Corporation

Exhibit 26: Growth in ISIR capex lower on a higher base

Particulars (INR b)

Inter-State

Intra-State

Total

12th plan

1,350

550

1,900

13th plan

1,600

1,000

2,600

Gr. (%)

19%

82%

Source: Company

A] Projects on nomination basis to continue

We conservatively factoring

INR600b opportunity

While the tariff guidelines stipulate projects to be awarded on competitive basis,

there is a possibility of projects being awarded on cost-plus/nomination basis to

PWGR even in the 13th plan. PWGR’s strong standing in execution, high technology

projects (high voltage direct current, HVDC), and system strengthening may lead to

project awards on nomination basis. The award of the Green Energy Corridor (GEC)

and the Chhattisgarh (Raigarh) - Tamil Nadu (Pugalur) HVDC line are cases in point.

Private players too are gaining experience with time.

PWGR has already been awarded GEC projects worth INR74b, while the total

opportunity size for ISIR capex stands at INR260b. Given the need to expedite

project implementation as the lead for setting up of renewable energy (RE) project

is low, GEC is likely to be fully awarded to PWGR on nomination basis. In addition,

we have assumed that HVDC lines (Chhattisgarh - TN line cost itself is INR250b+) and

system strengthening projects would contribute further. We expect PWGR to get

INR600b of ISIR projects on nomination basis in the 13

plan.

Exhibit 27: PWGR has pipeline of INR342b projects on nomination basis in 13 plan

Particulars

Part A

Part B

Part C

Total

Raigarh-Puglaur HVDC line

Total

Approved on

21-Apr-15

6-Jun-15

Cost (INR Cr)

1,479

3,706

2,247

7,432

26,820

34,252

Source: Company

Exec (months)

CoD

20-Apr-17

20-Apr-18

6-Jun-18

PWGR adopted the tariff-based competitive bidding (TBCB) framework on a sound

note, with ~50% share in projects awarded through the bidding route. This would

allow PWGR to grow its asset base, but whether this growth would be profitable

remains to be seen. In the earlier cost-plus framework, returns were uncertain.

TBCB projects may entail /offer better returns but may also pose downside risk,

bringing uncertainty to PWGR’s core business.

It is noteworthy that PWGR’s quotes in projects won by it are rather aggressive, vis-

à-vis CERC tariff for the same project and with respect to fellow bidders. In few

projects, the difference between the winning and second bids is as high as 20-40%,

while quoted levelized tariff is at 50% discount to CERC tariff in few large projects.

B] TBCB projects – returns uncertain, but exposure limited

6 October 2015

Power Grid Corporation

Exhibit 28: PWGR bids appear aggressive vis-à-vis peers and CERC tariff

Levelized tariff (INR m/year)

PGWR

CERC

PWGR lower by

CERC

Vizag

2,311

2,590

3,889

2,370

-10.8%

-40.6%

-2.5%

Unchahar

168

296

191

-43.4%

-12.2%

Gadarwara (A)

2,902

3,294

3,773

5,935

-11.9%

-23.1%

-51.1%

Gadarwara (B)

2,567

3,087

3,324

5,268

-16.8%

-22.8%

-51.3%

Kala Amb

594

598

818

696

-0.6%

-27.4%

-14.6%

V'chal-Jabalpur

2,110

2,182

2,647

4,217

-3.3%

-20.3%

-49.9%

Source: CERC, MOSL, Company

Under the cost-plus mechanism, cost increases and project delays did not dampen

project equity return. We note that PWGR has sought tariff hike of 23% for the

Nagapattinam-Madhugiri project, where cost increase has been to the extent of

~33%. This is despite fall in base commodity price since the project award.

Also, the project is slated for completion in December 2015 as per the transmission

service agreement (TSA), while we understand it is lagging significantly behind.

Given the nature of TBCB projects, any cost and time overruns would straightway

impact project IRRs. We understand that CERC has accorded its consent to

compensate PWGR for legitimate cost and time overruns beyond its control for the

Nagapattinam -Madhugiri project, but the actual recovery is likely to be significantly

lower than actual cost and time overruns, in our view.

Exhibit 29: Nagapattinam-Madhugiri project cost overrun at 30% (% of project cost)

Variation on account of

Key cost items

Tower

Conductor

Insulator

Hardware

Tower Erection

Civil work

Price variation

IDC

Others

Total

Base cost

24.8

20.9

3.7

2.7

2.4

9.7

12.7

8.3

14.7

100.0

Indices

FX impact

(%)

10.4

13.9

12.0

26.9

13.2

35.4

Tax/Duties

(%)

1.9

26.6

1.9

Total

(%)

Current cost

(% of total)

Incr.

(%)

27.9

24.3

6.4

3.1

11.2

15.1

9.1

31.7

132.1

3.1

3.4

2.7

0.4

0.7

1.5

2.4

0.9

17.1

32.1

(% of total) (%)

12.4

16.0

72.0

14.1

29.2

15.3

Source: CERC, MOSL

6 October 2015

Power Grid Corporation

Exhibit 30: Base metal prices have, however, declined (base to 100)

125

115

105

India import parity HRC - INR/t

Copper LME - USD/t

Aluminum LME

Source: MOSL

PWGR has a competitive advantage in TBCB projects mainly on: (1) interest cost, (2)

O&M cost, and (3) bargaining power with vendors, given its existing projects across

the country. PWGR’s cost of borrowing is 200-250bp lower than private sector

players because of its balance sheet strength.

Private players manage their project cost more efficiently by using optimized

designs as compared to PWGR’s standardized designs, but savings are limited to low

single-digit percentages. To offset higher cost of debt, private players resort to

higher leverage and financial engineering.

In our workings for TBCB projects, we note that despite assuming 8.5% cost of debt,

80:20 debt-equity and 40% discount to O&M cost (v/s CERC norms), the project

returns are muted to negative. In fact, the bidding leaves little margin of safety, as

the bids are tilted in favor of fixed charge and no escalation is envisaged.

Contribution of TBCB projects to total fixed assets is minimal

While TBCB projects bagged by PWGR may have muted returns, the overall

contribution of TBCB projects to capital employed (CE) is minimal. Based on current

project portfolio, TBCB projects would account for just 5% by FY20. They are unlikely

to have a major bearing on the consolidated financials, in our view.

Exhibit 31: TBCB project contribution to consolidated assets limited at 5% (INR b)

TBCB gross block (INR b)

140

120

100

0.9

FY16E

FY17E

FY18E

119

FY19E

119

FY20E

Source:

1.6

Share in Consolidated GB (%)

4.5

5.1

4.6

6.0

5.0

4.0

3.0

2.0

1.0

0.0

6 October 2015

Power Grid Corporation

For a private player to earn

its cost of capital, it must

save 14-26% in project cost

Competition from private sector unlikely to impact PWGR much

Though the private sector is keen to grow in the transmission business, stretched

balance sheet and higher weighted average cost of capital (WACC) may constrain

their participation in bidding. WACC for the private sector is much higher because of

higher cost of both equity and debt. Private sector players need to generate higher

IRR as compared to PWGR for the project to be value-accretive for them. The WACC

for PWGR is just 7.1% (cost of debt 8%, cost of equity 10%, tax rate 20%), while it is

9-11% for a private player assuming 80:20 debt-equity. Private players need to save

14-26% in project cost with respect to PWGR’s project cost (on nomination basis) to

earn their cost of capital. This is an uphill task.

Exhibit 32:

Private players have limited financial bandwidth to take large pie of TBCB projects

INR Cr

Sterlite Grid

Adani Transmission

Essel Infrastructure

L&T

Kalpataru

Gammon India

NCC

IVRCL

Techno

Elecnor

Ind-Barath

FY15 Consolidated

Net worth

469

1,535

N.A.

37,102

2,099

818

3,204

866

685

N.A.

Debt

4,207

3,396

N.A.

12,000

2,538

5,184

1,995

7,683

175

N.A.

DER (x)

9.0

2.2

N.A.

0.3

1.2

6.3

0.6

8.9

0.3

N.A.

Source: MOSL, Company

While PWGR has bid aggressively in the past, it is unlikely that it would be equally

aggressive in future. In the recent tenders, PWGR did not bid aggressively. It already

has more on its plate than it can chew. Since the overall opportunity size is still

growing, we believe returns would remain attractive.

Exhibit 33: PWGR did not bid aggressively in recent tenders

Levelized tariff (INR m/yr)

PWGR

Higher by

NP* = Not participated

Chattisgarh (A)

1,320

1,436

NP*

Chattisgarh (B)

1,780

2,100

2,280

28%

Sipat

790

920

1,060

34%

15%

Source: MOSL, Media

In recent tenders, Adani Transmission walked away with three projects worth

INR36.6b. In one of the projects, PWGR did not bid, while in two others, it was L2

and L3. This shows that PWGR is unlikely to bid aggressively. PWGR has been

executing more projects than it can support by internal generation of equity if it

were to capitalize on 30% maximum permissible equity limit in the project cost.

PWGR’s contribution in regulated return projects falls short of the 30% limit, despite

frequent equity infusion.

6 October 2015

Power Grid Corporation

Exhibit 34: PWGR has already bitten more than it can chew (INR b)

100

Retained Earning

Equity infusion

Equity Reqd in Capex @30%

Source: MOSL,Company

C] Intra-state capex a new landscape; initial forays made through JV route

Given that state DISCOMs are facing financial issues, there lies an opportunity for

the PPP (public private participation) model for intra-state transmission. The

opportunity is for both the private sector and for PWGR. PWGR has adopted the JV

route with few state governments to ramp up intra-state investment. It has dual

scope of entering into JVs or participating in the PPP model for capturing a share of

the intra-state capex.

Exhibit 35: PWGR has entered into JVs with two states (INR b)

Total Possible share

size

of PWGR

State

JVs

Comment

Currently, JVs signed with Bihar and under discussion with Odhisa.

PWGR share at 50%

Total planned capex for 2JVs is estimated at INR88b

Opportunity exists for other states to sign JVs with PWGR, but not

many states are forthcoming.

States with financial war chests are unlikely to join hands with PWGR;

opportunity thus limited to loss-making states

Source: MOSL, Company

6 October 2015

Power Grid Corporation

Expect strong earnings CAGR of 14%

Visibility of INR1.5t capitalization key driver



Regulated (standalone) business has strong visibility of INR1.1t capex and INR1.5t

capitalization (1.25x of FY15 gross block). This should drive RAB and PAT CAGR of 14%

over FY15-22.

Internal generation of equity is improving; yet it remains short of the permissible limit

of 30% in projects. We expect PWGR to (1) reduce dividend payout to retain more

equity for projects, and (2) use higher leverage.

TBCB projects would have combined equity IRR of 5.2% and NPV of minus INR17b,

assuming (not shared by company) total project cost of INR116b and cost of equity of

~10%. Efficient project cost management is key to IRR and NPV. However, share of

TBCB projects in capital employed is only 4-5%.

We expect 14.2% CAGR in consolidated EPS and 11.4% CAGR in consolidated BV over

FY15-22. RoE should expand by 270bp to 16.6% by FY22 along with fall in share of

CWIP in capital employed.



At the end of FY15, PWGR had INR1.26t of projects under execution. It had already

spent INR655b and INR609b of capex was pending at that time. Post that, PWGR has

received an order worth INR268b for the Raigarh-Pugalur 8GVA HVDC bi-pole line.

Further, the INR208b GEC adds up to INR1.1t of capex pending execution. Add to

this, CWIP of INR399b at the end of FY15, and total capitalization ahead is INR1.5t.

Exhibit 36: Project awards pick up again (INR b)

476

392

255

126

Regulated business: Visibility of INR1.1t capex and INR1.5t capitalization

Exhibit 37: INR1.5t capitalization ahead (INR b)

a. Projects under progress at FY15 year end

b. of above, the spent amount

c. Outstanding projects at FY15 end (a-b)

d. Chhattisgarh Pugalur

f. GEC

Order size

included in (a)

h. GEC's balance order (f-g)

j. Outstanding capex

k. CWIP at FY15 year end

l. Pending for capitalization (j+k)

1,263

654

609

268

260

208

1,085

399

1,484

212

144

135

FY09

FY10

FY11

FY12

FY13

FY14

FY15 FY16E

Source: MOSL, Company

PWGR has huge opportunity to execute projects and capitalize. However, it remains

constrained by availability of internal generation of equity.

6 October 2015

Power Grid Corporation

Exhibit 38: Despite frequent equity infusion, there are huge gaps

100

Retained Earning

Equity infusion

Equity Reqd in Capex @30%

Source: MOSL

To bridge the gap, PWGR needs to either raise equity or increase debt-equity in

capex. Since the management is not inclined towards infusion of further equity

(possibly due to low promoter holding at 57.9%), we assume that the shortfall in

equity will be met by higher project debt-equity, reduction in dividend payout, and

release of project working capital. This would help reduce tariffs for the consumer.

Exhibit 39: Equity - internal generation v/s project requirements

Although PAT/Capex ratio is

improving, it still falls short

of the regulatory limit of

30% in capex. Expect lower

dividend payout in next 2

years…

Div. payout (%)

RE/Capex (%)

PAT/Capex(%)

Regulatory limit (%)

Source: MOSL

Exhibit 40: Equity funding of capex

Equity in capex (%)

Regulatory limit (%)

…lower equity contribution

in projects in near term

22.5

23.5

FY16E

FY17E

FY18E

FY19E

FY20E

FY21E

FY22E

Source: MOSL

We have assumed that PWGR is not counting construction store in CWIP. It is being

funded by increasing project liabilities and more efficient project management.

Construction stores (number of days of capex) have declined continuously.

6 October 2015

Power Grid Corporation

Exhibit 41: Construction stores have declined continuously

564

402

223

397

296 278

226

Construction stores (Capex days)

172

159 155 150

120 120 120 120 120

Source: MOSL, Company

We believe PWGR would keep squeezing project-related working capital to manage

its cash flows, as it has strong bargaining power with vendors. The bargaining power

is further enhanced due to general slowdown in the economy.

Exhibit 42: Project working capital (days of capex)

Expect further efficiencies

in managing of project

related stores, advances

and dues

800

600

400

200

205

277

124

525

716

505

Stores and capex advances

project liabilities

415

372

275

200 200 195 165 165 165 165 165

140

Source: MOSL

Exhibit 43: Working capital release (increase) from projects and operations (INR b)

-3

-1

-2

-5 -11

-3

-6

-5

-19

-44

-34

-19

Source: Company, MOSL

Though capex (erection excluding of construction stores) would tend to taper,

capitalization would remain strong, driven by INR1.5t of projects under execution.

Strong capitalization would drive 14% CAGR in RAB and PAT over FY15-22E.

Growth in RAB would be reflected in core income growth for PWGR – a CAGR of 14%

over FY15-22E. We expect Telecom division to record earnings CAGR of 13% over

FY15-22, and Consultancy division to record muted earnings growth on higher base.

PAT should grow at a CAGR of 14% over FY15-22E.

6 October 2015

Power Grid Corporation

Exhibit 44: Capitalization remains strong… (INR b)

Capex

300

172 159

218

240 240 240 240 230

180

645

RAB and PAT to grow at cagr

573

501

of 14% over FY15-22E

429

373

305

253

178 215

113 136

Capitalization

Exhibit 45: …and will drive RAB and PAT growth (INR b)

RAB

PAT

714

768

130

Source: MOSL, Company

Exhibit 46: RoE (%) to improve on declining share (%) of CWIP in capital employed

CWIP/Cap Employed

9 8.5

15 14

19 20 19 19

16.9

14 14

13.8

16.6

RoE

Note: these are standalone(regulated) numbers

Source: MOSL

At total project cost of

INR116b, equity IRR is 5.2%

and NPV is minus INR17b at

~10% cost of equity

PWGR’s equity contribution in TBCB projects is estimated at INR23b and FY22E PAT

at INR889m – an RoE of 3.8%. The NPV of equity invested in projects works out to be

minus INR17b at cost of equity of ~10%. Any major cost and time overrun may

further impact project returns, leading to additional negative contribution.

TBCB: Project cost management key to IRR and NPV

Exhibit 47: Profit and loss (TBCB aggregates)

Revenue

O&M

EBITDA

Margin (%)

Other Income

Depreciation

EBIT

Interest

PBT

Tax

Tax rate

PAT

RoE

FY16E

893

140

753

84%

533

220

680

(459)

-7.6%

FY17E

3,468

312

3,156

91%

847

2,309

1,944

365

149

41%

216

1.8%

FY18E

10,907

999

9,908

91%

3,721

6,202

5,190

1,012

275

27%

737

3.9%

FY19E

13,925

1,317

12,608

91%

4,741

7,924

7,568

356

282

79%

0.3%

FY20E

14,220

1,383

12,837

90%

105

4,741

8,201

7,425

776

366

47%

410

1.7%

FY21E

14,092

1,452

12,640

90%

153

4,741

8,053

7,022

1,031

370

36%

661

2.6%

FY22E

13,952

1,525

12,428

89%

227

4,741

7,914

6,619

1,295

406

31%

889

3.4%

Source: MOSL

These calculations are based on our best efforts; PWGR does not share project

costs. We have assumed total project cost of INR116b. The actual returns would be

known at the time of completion/capitalization. If PWGR is able to execute at lower

6 October 2015

Power Grid Corporation

cost, IRR and NPV would be better. The contribution of TBCB projects to PWGR’s

overall assets is only ~5%.

In recent bids, PWGR was

not aggressive and let the

projects go to private

players (e.g. Adani); we are

optimistic that there will be

healthy competition in the

TBCB space

In view of most players’ stretched balance sheets, we expect less aggression in

bidding going forward. PWGR’s cost-plus projects operate at IRR of 7.5%, as it funds

projects at 70:30 debt-equity (assuming 8% cost of debt and 10% cost of equity).

The WACC for any private player is much higher. For a private player to generate

positive NPV, it needs to manage the entire project at much lower cost than PWGR.

Since TBCB is in initial stages, we will know the actual returns in due course. We see

no compelling reason for PWGR to get into aggressive bidding in future. PWGR

already has INR1.1t of projects under execution, which is good for five years.

6 October 2015

Power Grid

Exhibit 48: Summary of tariff based competitively bid (TBCB) projects

Vizag

Bidding Details

CERC

Summary of returns

Project cost (INR mn)

Equity (from parent)

INR m

Months

Zero date

CoD

Nagapattinam

-Madhugiri

Bidder

Tariff

Bidder

INR m/yr

987.0

PGCIL

1,529.4 Ind-Barath

2,082.5

NCC

2,085.9

IVRCL

2,389.9

SGL

10,250

2,665

29-Mar-12

28-Feb-15

80:20

8.5%

(5,381)

10.0%

1.6%

Unchahar

Tariff Bidder

INR m/yr

191.0

167.7 PGCIL

296.3

SGL

Gadarwara projects

Gadarwara (A)

Gadarwara (B)

Tariff Bidder

INR mn/yr

5,934.9

5,268.3

2,901.5 PGCIL

2,567.3 PGCIL

3,293.6

SGL

3,086.7

SGL

3,773.0 Adani

3,324.4

Essel

3,960.0

Essel

3,428.3 Adani

Kala Amb

Tariff Bidder

INR mn/yr

696.0

594.3 PGCIL

598.0 Techno

818.1

Essel

974.0

SGL

Vindhyachal

-Jabalpur

Tariff

Bidder

INR mn/yr

4,213.6

2,110.0

PGCIL

2,182.0 Kalpataru

2,646.6

Essel

2,987.1

SGL

Total

115,450

23,705

Tariff

INR m/yr

2,369.7

2,311.3

PGCIL

2,590.0

SGL

3,888.9 Gammon

DER

Cost of debt

Debt repayment

NPV

Cost of equity

Equity IRR

years

14,500

2,900

30-Aug-13

4-Sep-16

80:20

8.5%

4,614

10.0%

22%

1,200

240

24-Mar-14

23-Sep-16

80:20

8.5%

211

10.0%

15%

60,000

12,000

24-Apr-15

30-Nov-17

80:20

8.5%

(9,726)

10.0%

4.8%

(both A and B)

24-Apr-15

1-Jan-18

80:20

8.5%

4,000

800

12-May-14

12-May-17

80:20

8.5%

700

10.0%

15.7%

25,500

5,100

26-Feb-15

26-Jun-18

80:20

8.5%

(7,353)

10.0%

-4.5%

-16,935

10.0%

5.2%

Source: MOSL

1 October 2015

Power Grid Corporation

Earnings CAGR of 14% over next 5-7 years, driven by strong capitalization

On a consolidated basis, we expect EPS to grow at CAGR of 14.2% and book value at

a CAGR of 11.4% over FY15-22, driven by high intensity of capex and capitalization.

Pending execution of INR1.1t of approved projects received on nomination basis and

INR1.5t of planned capitalization gives strong visibility of RAB and earnings growth.

Exhibit 49: Capitalization to capex ratio improving

1.6

1.2

0.8

0.6

0.8

1.0

1.6

1.4

Exhibit 50: RoE to improve as CWIP/CE falls

CWIP/Cap Employed (%)

RoE (%)

1.3

0.9

Source: MOSL

Capitalization is likely to outstrip capex in ensuing years. As a result, the share of

CWIP in capitalization would decline. This would result in a reduction in the share of

idle equity (not part of RAB, and hence, not eligible for earnings RoE) in total equity.

Consequently, RoE would tend to improve gradually to 16.6%.

PWGR is in a sweet spot. It is executing more projects than its internal equity

generation can support. Despite raising equity frequently, its internal accruals still

fall short (although improving) of the permissible 30% equity in capex. Further

equity infusion would have helped. In the absence of that, PWGR is contributing

lower equity in capex. This also means less equity is idling in CWIP.

6 October 2015

Power Grid Corporation

Equity infusion to bridge equity gap?

A value-neutral exercise, in our view



INR47b of equity infusion is needed to capitalize on full 30% equity limit in projects.

This might dilute RoE by 2-3%, while book value should increase by a similar 2-3%.

Therefore, it is largely a value-neutral exercise at this stage.

Exhibit 51: Additional equity infusion may be done in FY16 to bridge the gap

100

Retained Earning

Equity infusion

Equity Reqd in Capex @30%

Source: MOSL

As discussed earlier in this report, PWGR would fall short of equity if it were to

contribute 30% (maximum permissible limit) in projects. According to our

calculations, it might need to infuse INR47b addition equity through FPO. Assuming

INR47b of equity is raised at a price of INR121/share, there would be only marginal

2-3% dilution in RoE, while there would be 2-3% accrual to book value in FY18E.

Therefore, we are neutral to equity dilution.

Exhibit 52: Share of equity in capitalization (%)

Pre

diluted

15.5

17.9

Exhibit 53: EPS (INR)

diluted

Pre

20.2

22.5

24.7

9.7

FY16E

FY17E

FY18E

FY19E

FY20E

FY21E

FY22E

11.2

10.7

13.4

13.3

15.5

17.7

19.9

22.0

24.1

FY15 FY16E FY17E FY18E FY19E FY20E FY21E FY22E

Source: MOSL, Company

Exhibit 54: Book value (INR/share)

Pre

diluted

143.7

157.8

Exhibit 55: RoE (%)

Pre

diluted

16.5

15.9

16.7

16.6

73.5

85.3

96.4

108.9 119.2

130.8

15.2

13.9

14.4

14.6

13.5

15.5

15.1

16.1

15.6

16.1

16.0

FY15 FY16E FY17E FY18E FY19E FY20E FY21E FY22E

Source: MOSL, Company

6 October 2015

Power Grid Corporation

Visibility of strong earnings growth

DCFE-based target price of INR173 – 31% upside; Buy



PWGR has strong visibility of earnings growth and is the best among regulated

businesses. While NTPC and NHPC have to maintain both PLF and PAF, PWGR has to

maintain only PAF. It is thus, less dependent on external factors.

A dominant market position gives it bargaining power over vendors and helps in

working capital management. Huge opportunity and shorter execution cycle ensure

better realized RoE.

We value the stock at INR173/share based on DCFE. At INR173, the stock would trade

at a P/B of 2.1x – an upside of 31%. We reiterate Buy.



On a consolidated basis, we expect EPS to grow at a CAGR of 14.2% and book value

to grow at a CAGR of 11.4% over FY15-22, driven by high intensity of capex and

capitalization. Pending execution of INR1.1t of approved projects received on

nomination basis and INR1.5t of planned capitalization provides strong visibility of

RAB and earnings growth.

Among regulated businesses, PWGR is the best. Fixed charges constitute 100% of its

revenue, while incentives are linked to availability (PAF). PWGR’s revenue (thus RoE)

is insulated from external operational factors. NTPC and NHPC too have regulated

business, but besides PAF, have to meet the additional requirement of PLF to earn

incentives. PLF is also dependent on external factors like availability of coal and

scheduling of power. PLF of coal based power plants has been declining gradually

due to over-investment in generation. On the other hand, PWGR is benefiting from

over-investment in generation, because consumers now have flexibility to choose

cheaper power. The variable cost of power keeps fluctuating due to volatility in fuel

cost. It is cheaper to transport electricity than to transport fuel.

Though INR116b of projects awards under TBCB might earn lower equity IRR of 5-6%

v/s regulated RoE of 15.5%, we are not particularly worried, because (1) equity is

funded by working capital release, (2) total share of TBCB projects is just 5% in

capital employed, and (3) PWGR is unlikely to bid aggressively in future. Project

awards on nomination (regulated return) basis during FY16E so far are at historically

highest levels (exhibit 36).

Consultancy and Telecom businesses, though small compared to the core

Transmission business, are the icing on the cake.

Exhibit 56: Discounted cash flow to equity (INR million)

FY16

FY17

FY18

Explicit forecast period ----------->

320,000 320,000 320,000

267,092 247,904 187,704

58,849

70,172

80,976

-47,359

-58,007

-63,899

11,490

12,165

17,077

11,490

12,165

17,077

FY19

320,000

166,704

93,737

-53,975

39,762

FY20

320,000

170,329

105,775

-60,767

45,008

FY21

320,000

180,329

117,968

-67,697

50,271

FY22

FY23…

...FY32

FY33

Stage 1 --------->

320,000 320,000 754,543

200,329 207,219 332,656

129,252 138,146 221,771 231,700

-74,114

-62,166

-99,797

-50,974

55,139

75,980 121,974 2,560,348

55,139

75,980 121,974 180,726

0 2,379,622

Source: MOSL

ISIR Industry Capex

PWGR capex

PWGR Share (%)

PAT

Retained Earnings

(%) retained

Free Cash flow to Equity

Explicit period

Stage 1

Terminal value

6 October 2015

Power Grid Corporation

We have adopted the Discounted Cash Flow to Equity (DCFE) approach to value the

stock. With strong visibility of earnings, we have used explicit forecasts up to FY22E.

Thereafter, we expect PWGR to gradually lose market share from 66% in FY22 to

44% in FY32. Also, we are conservatively building lower 12% RoE and lower re-

investment rate of 45% on incremental projects (mix of nomination and TBCB) over

FY23-32. For terminal value, we have further cut the re-investment rate to just 22%

and RoE to 10% (same as cost of equity). This translates into a DCFE-based target

price of INR173/share. The cost of equity for PWGR is ~10% (risk-free rate of 7.7%,

equity market risk premium of 5%, and adjusted beta of 0.45x). At INR173, the stock

would trade at P/B of 2.1x – an upside of 31%. This is consistent with superior

business RoE of ~16% as compared to cost of equity of ~10% and re-investment

opportunity. We re-iterate

Buy.

Exhibit 57: Target price calculation

Rf. Nominal risk free rate

B. Beta

Km. Equity Risk premium

Cost of equity (Rf+Km x B)

DCFE

A. Explicit forecast

RoE

(%)

12.0

10.0

Re-Invst

(%)

Growth

(%)

5.4

2.2

(%)

INR m

145,417

7.7

0.45

5.0

10.0

INR/sh.

B. Stage 1

C. Terminal Value

Target price (A+B+C)

329,077

431,513

173

Source: MOSL

Exhibit 58: PWGR trading at 5-year average P/E

12.8

15.4

11.8

P/E (x)

5 Yrs Avg(x)

7 Yrs Avg(x)

Exhibit 59: P/B too closer to 5-year average

5.0

4.2

3.4

2.6

1.8

1.0

1.8

2.1

16.0

14.5

1.7

13.0

P/B (x)

7 Yrs Avg(x)

5 Yrs Avg(x)

ROE (%)

17.5

Source: MOSL

Exhibit 60: Comparative valuation

Mkt Cap CMP

(USD B) (INR)

1.1

529

31.9

330

0.3

2.3

2.9

16.1

127

10.6

132

0.3

1.4

358

2.8

EPS (INR)

FY15 FY16E FY17E

55.2 54.6 62.8

21.7 23.5 27.7

-2.2

-0.2

2.6

8.4

9.1 10.7

2.2

2.1

11.0 11.6 13.0

9.7 11.2 13.4

10.5 10.4 12.3

58.3 58.7 54.6

3.0

4.3

5.6

FY15

9.6

15.2

-3.0

11.1

7.8

11.6

13.6

5.9

6.1

22.4

P/E (x)

FY16E FY17E

9.7

8.4

14.0 11.9

-30.3

2.5

10.3

8.8

8.1

7.9

11.0

9.8

11.8

9.9

6.0

5.0

6.1

6.6

15.5 12.0

FY15

1.0

5.2

0.4

2.0

0.6

1.3

1.8

0.7

0.4

1.2

P/B (x)

FY16E FY17E

0.9

0.8

5.0

4.8

0.4

0.3

1.8

1.5

0.6

1.4

1.3

1.6

1.4

0.7

0.6

0.4

1.1

RoE (%)

FY15 FY16E FY17E

10.5

9.7 10.2

34.0 35.5 40.1

-12.7

-1.3

14.5

19.6 18.5 18.9

8.2

6.5

6.4

10.8 12.2 13.5

13.9 14.4 15.2

7.0

7.3

8.3

7.4

7.1

6.2

7.4

7.3

7.4

Source: MOSL

CESC

Coal India

RattanIndia Power

JSW Energy

NHPC

NTPC

Power Grid Corp.

PTC India

Reliance Infra.

Tata Power

6 October 2015

Power Grid Corporation

Financials and Valuations

Income Statement

Y/E March

Net Sales

Change (%)

EBITDA

% of Net Sales

Depreciation

Interest

Other Income

PBT before EO

EO income (expense)

PBT after EO

Tax

Rate (%)

Reported PAT

Adjusted PAT

Change (%)

2013

131,639

26.1

112,139

85.2

34,278

25,994

5,632

57,498

316

57,814

14,688

25.4

43,126

42,810

29.2

2014

156,754

19.1

132,639

84.6

40,794

32,537

4,707

64,015

-425

63,590

18,114

28.5

45,476

45,901

7.2

2015

176,585

12.7

151,262

85.7

51,733

40,812

5,745

64,462

-421

64,041

13,579

21.2

50,463

50,883

10.9

2016E

215,242

21.9

185,978

86.4

64,523

52,253

4,755

73,957

15,108

20.4

58,849

15.7

2017E

257,086

19.4

224,558

87.3

77,623

64,658

5,815

88,092

17,920

20.3

70,172

19.2

2018E

299,965

16.7

263,967

88.0

91,863

76,148

5,637

101,594

20,618

20.3

80,976

15.4

2019E

339,358

13.1

299,547

88.3

104,248

85,200

7,621

117,720

23,983

20.4

93,737

15.8

2020E

373,864

10.2

330,565

88.4

115,614

89,661

7,480

132,769

26,994

20.3

105,775

12.8

(INR Million)

2021E

406,134

8.6

359,533

88.5

126,743

92,756

7,920

147,953

29,985

20.3

117,968

11.5

2022E

432,549

6.5

383,116

88.6

136,451

93,409

8,782

162,039

32,786

20.2

129,252

9.6

Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Loans

Deferred Rev. & tax

Capital Employed

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Investments

Other Assets

Inventory

Debtors

Cash & Bank Balance

Other Current Assets

Loans & Advances

Other Liabilities

Net Current Assets

Application of Funds

E: MOSL Estimates

(INR Million)

2013

2014

2015

2016E

2017E

2018E

2019E

2020E

2021E

2022E

46,297

52,316

217,734 294,664 332,071 379,630 438,511 503,805 558,512 620,347 689,363

765,024

264,031 346,979 384,387 431,945 490,826 556,120 610,828 672,663 741,679

817,340

692,334 842,196 962,434 1,106,576 1,220,017 1,263,934 1,277,664 1,281,929 1,282,065 1,286,493

57,415

70,195

73,030

1,013,780 1,259,370 1,419,852 1,611,552 1,783,874 1,893,084 1,961,523 2,027,623 2,096,775 2,176,864

823,160 982,247 1,204,801 1,518,455 1,774,484 2,078,813 2,344,642 2,584,971 2,815,300 2,995,629

197,475 239,730 292,891 357,413 435,036 526,899 631,147 746,761 873,505 1,009,956

625,685 742,517 911,911 1,161,042 1,339,448 1,551,914 1,713,495 1,838,210 1,941,796 1,985,673

194,716 323,911 404,760 358,198 350,073 233,448 134,323

64,323

14,323

34,323

5,864

4,234

2,196

307,576 344,235 288,776 269,181 271,222 249,660 260,300 276,343 296,567

322,093

163,467 183,914 139,241 104,392 102,893

61,388

66,161

70,974

75,696

83,629

14,914

16,183

22,070

19,707

23,846

28,149

32,033

36,020

39,769

43,319

26,789

49,744

29,886

53,326

51,928

75,478

75,540

80,512

89,727

99,753

36,060

42,775

51,864

51,974

52,774

54,110

54,798

55,837

57,142

58,692

66,347

51,620

45,717

39,782

30,535

31,768

33,001

34,234

36,700

120,061 155,527 187,791 179,065 179,065 144,134 148,791 153,449 158,107

167,422

187,516 188,708 100,985

90,116

92,157 105,526 111,509 122,894 138,461

154,672

1,013,780 1,259,370 1,419,852 1,611,552 1,783,874 1,893,084 1,961,523 2,027,623 2,096,775 2,176,864

6 October 2015

Power Grid Corporation

Financials and Valuations

Ratios

Y/E March

Basic (INR)

EPS

Growth (%)

Cash EPS

Book Value

DPS

Div.Payout (incl. Tax.)

Valuation (x)

P/E

Cash P/E

EV/EBITDA

Price/Book Value

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Turnover Ratios

Debtors (Days)

Inventory (Days)

Current Liabilities (Days)

Asset Turnover (x)

Leverage Ratio

Debt/Equity (x)

2013

9.2

29.2

16.7

57.0

2.8

35.0

14.3

7.9

11.4

2.3

2.1

17.1

9.1

167

122

0.2

2.62

2014

8.8

-5.1

16.6

66.3

2.6

35.1

15.0

8.0

11.2

2.0

14.2

8.5

165

139

0.2

2.43

2015E

9.7

10.9

19.6

73.5

2.0

24.7

13.6

6.7

10.7

1.8

1.5

13.9

7.9

108

145

0.2

2.50

2016E

11.2

15.7

23.6

82.6

1.8

19.3

11.7

5.6

9.4

1.6

1.4

14.4

8.3

136

0.2

2.56

2017E

13.4

19.2

28.3

93.8

1.8

16.3

9.8

4.7

8.3

1.4

15.2

9.0

129

0.2

2.49

2018E

15.5

15.4

33.0

106.3

2.5

19.7

8.5

4.0

7.1

1.2

1.9

15.5

9.7

108

0.2

2.27

2019E

17.9

15.8

37.8

116.8

6.2

42.0

7.4

3.5

6.3

1.1

4.7

16.1

10.5

107

0.2

2.09

2020E

20.2

12.8

42.3

128.6

7.0

42.0

6.5

3.1

5.7

1.0

5.3

16.5

11.2

103

0.2

1.91

2021E

22.5

11.5

46.8

141.8

7.8

42.0

5.8

2.8

5.2

0.9

5.9

16.7

11.7

0.2

1.73

2022E

24.7

9.6

50.8

156.2

8.5

42.0

5.3

2.6

4.9

0.8

6.5

16.6

12.0

0.2

1.57

Cash Flow Statement

Y/E March

PBT before EO Items

Depreciation

Interest

Others

(Inc)/Dec in WC

Direct Taxes Paid

CF from Operations

(Inc)/Dec in FA

(Pur)/Sale of Investments

CF from Investments

Equity raised

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

E: MOSL Estimates

(INR Million)

2013

2014E

2015E

2016E

2017E

2018E

2019E

2020E

2021E

57,756

63,590

64,041

73,957

88,092 101,594 117,720 132,769 147,953

34,574

40,942

51,733

64,523

77,623

91,863 104,248 115,614 126,743

25,994

32,537

40,812

52,253

64,658

76,148

85,200

89,661

92,756

-4,299

-2,921

-4,243

-4,755

-5,815

-5,637

-7,621

-7,480

-7,920

14,227

10,137

61,903

34,309

-3,439

10,181

-5,921

-6,413

-6,352

-11,356 -12,302 -11,519 -15,108 -17,920 -20,618 -23,983 -26,994 -29,985

116,897 131,983 202,728 205,179 203,198 253,530 269,644 297,157 323,196

#REF!

-226,145 -250,288 -294,508 -267,092 -247,904 -187,704 -166,704 -170,329 -180,329

5,305

4,139

7,934

4,755

5,815

5,637

7,621

7,480

7,920

-220,840 -246,149 -286,574 -262,337 -242,089 -182,067 -159,083 -162,849 -172,409

138,868

-22,970

-16,279

99,619

-4,325

31,113

26,789

52,966

127,244

-28,374

-14,715

137,121

22,955

26,789

49,744

115,070

-37,816

-13,266

63,988

-19,858

49,744

29,886

144,142

-52,253

-11,291

80,597

23,440

29,886

53,326

113,441

-64,658

-11,291

37,493

-1,398

53,326

51,928

43,916

13,731

4,265

136

-76,148 -85,200 -89,661 -92,756

-15,682 -39,029 -43,940 -48,952

-47,913 -110,499 -129,337 -141,572

23,550

51,928

75,478

75,540

4,972

75,540

80,512

9,215

80,512

89,727

2022E

162,039

136,451

93,409

-8,782

-6,185

-32,786

344,146

-200,329

8,782

-191,547

4,428

-93,409

-53,591

-142,572

10,027

89,727

99,753

6 October 2015

Power Grid Corporation

Corporate profile: Power Grid Corporation

Company description

Power Grid Corporation of India (PWGR) is a

central transmission utility (CTU) with a mini-

navratna status. It owns and operates most of

India's inter-state and inter-regional power

transmission system. It has been identified as a

nodal agency by the government to set up inter-

regional transmission capacity.

Exhibit 60: Sensex rebased

Exhibit 62: Shareholding pattern (%)

Jun-15

57.9

8.3

26.5

7.4

Promoter

DII

FII

Others

Mar-15

57.9

7.9

27.6

6.6

Jun-14

57.9

8.2

26.9

7.1

Exhibit 63: Top holders

Holder Name

Europacific Growth Fund

LIC of India

New World Fund INC

ICICI Prudential Life Insurance Company Ltd

Comgest Growth PLC A/C Comgest Growth Emerging

% Holding

4.8

2.7

1.7

1.5

1.3

Note: FII Includes depository receipts

Exhibit 64: Top management

Name

R N Nayak

Designation

Chairman & Managing Director

Exhibit 65: Directors

Name

R N Nayak

R K Gupta*

Mahesh Shah*

K Ramalingam*

Ajay Kumar Mittal*

R Krishnamoorthy

Name

R T Agarwal

R P Sasmal

R P Singh

I S Jha

Jyoti Arora

Pradeep Kumar

*Independent

Exhibit 66: Auditors

Name

Chatterjee & Co

S K Mehta & Co

Sagar & Associates

K G Goyal & Associates

S C Mohanthy & Associates

Type

Statutory

Cost Auditor

Exhibit 67: MOSL forecast v/s consensus

EPS

(INR)

FY16

FY17

FY18

MOSL

forecast

11.2

13.4

15.5

Consensus

forecast

11.4

13.2

16.1

Variation

(%)

-2.0

1.4

-3.9

6 October 2015

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COAL INDIA

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Power Grid Corporation

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