12 November 2019
Update | Sector: Utilities
TP: INR244 (+27%)
Growth in transmission to continue
Asset monetization on cards, but clarity awaited
We attended Power Grid (PWGR)’s analyst meet. Below are the key takeaways:
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Transmission sector to grow 8-9% over the next 10 years
1002.9 / 14
216 / 173
PWGR has noted that India’s current low per capita electricity consumption
(1/3rd of the world average) and focus on renewable energy (RE) investment
will necessitate growth in transmission works.
INR478b worth transmission projects corresponding to ~70GW of RE capacities
have been identified for awarding. Of this, INR147b has been allocated to
regulated tariff mechanism (RTM) and tariff-based competitive bidding (TBCB)
projects, while the balance is up for allocation.
From a longer-term perspective, company believes that India’s vision to reach
450GW of RE capacity by 2030 (from est. 175GW in 2022) would necessitate
incremental investments of INR2.8t within transmission. By and large, PWGR
expects the transmission sector to grow at 8-9% over the next 10 years.
Capitalization run-rate at ~INR200b for FY20/FY21
PWGR has claimed that a few right of way (RoW) issues related to its Raigarh-
Pugalur project have been resolved; it also expects Phase 1 of the project
(INR90b) to be completed in Feb’20 with subsequent commissioning in Mar’20.
We note that PWGR had set up capitalization target of INR200-250b for FY20
and much of it is dependent on the commissioning of this project.
Company has noted that issues pertaining to RoW have heightened due to
forest clearances, issues in obtaining RoW near city areas and greater
awareness among locals of their rights. However, it has not witnessed a severe
impact for its under-execution projects. PWGR expects capitalization of
INR200-220b for FY21.
FII Includes depository receipts
Stock Performance (1-year)
Power Grid Corpn
Sensex - Rebased
Asset monetization in the works
PWGR is looking to monetize assets through the InvIT mode (the government
has set a target to raise INR100b from InvITs in FY20) and has taken an in-
principle approval from the board. Company plans to use the proceeds from
this monetization primarily for investing in upcoming projects. In case of lower-
than-expected investment opportunities, the available excess cash will be paid
out as dividends.
PWGR will also be the project and investment manager of this InvIT and earn a
recurring fee income on it. Company does not intend to have more than 15%
holding (minimum sponsor holding required) in the InvIT.
The InvIT route is more suited for PWGR’s TBCB projects as these are housed in
separate SPVs and don’t have any stamp duty implications. TBCB projects
though have a lock-in period and the company can currently transfer INR17b of
projects (another INR44b to be eligible by Jun’20).
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com); +91 22 61291572
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