Thread by @alphaspotcap

Power Grid Corp Analysis! 🇮🇳

A Detailed Thread🧵👇🏻
#investing #stockstowatch

(1/18)

About:

Power Grid is a Maharatna CPSU & India’s largest electric power transmission company.

As on December 31, 2021, PGCIL owned transmission lines of 172,190 ckm with 264 substations
with capacity of 469,600 MVA.

GOI has 51.34% stake in the company.

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• Powergrid transmits about 50% of the total power generated in India on its transmission network

• It also undertakes transmission related consultancy to more than 150 domestic clients and owns & operates 71673 km of telecom network

(3/18)

Key Positive Triggers:

• Large network of transmission assets:

PGCIL owns 85% of the inter-regional capacity of the country as of February 2022.

It owns transmission lines of 172,190 circuit kilometres (ckms) & 264 substations with a capacity of 469,600 MVA.

(4/18)

• Efficiency:

It has a high system availability of above 99.7% in the last 5 years against the minimum target of 98% as per CERC norms. Ensuring the recovery of annual transmission charges & earning incentive for availability being higher than
the normative levels.

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• Strong Backing by GOI:

The GoI’s support to PGCIL in the form of guarantees enables the company to raise long-term funds at competitive rates.

The company is also executing several strategically important projects assigned to it by the government.

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• Cost-plus nature of tariff:

The company generates stable revenues and cash flows as a significant portion (above 95% of its revenues) of the transmission assets are commissioned under the
cost-plus tariff norms by the CERC for transmission projects.

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• The components of the annual transmission charges include ROE, tax on ROE, interest on term loan, interest on working capital loan, O&M expenses & depreciation. The company needs to ensure network availability above the normative level of 98% to recover the charges.

(8/18)

Liquidity:

The liquidity is superior, supported by the regulated nature of operations (which allow for adequate recovery
of fixed charges, including debt servicing requirements). This is supplemented by the satisfactory operational track record of
Power Grid.

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Key Challenges:

• The company is exposed to the weak financial profile of
its counterparties i.e.the state distribution utilities. However, the company has demonstrated satisfactory collection efficiency
of 98.7% in FY18, 94.9% in FY19, 100.0% in FY20 & 103.78% in FY21.

(10/18)

• Dependence on Govt Support;

The company can face some challenges if there is a change in ownership/or weakening of linkages with the Government of India. Currently it is one of the Maharatnas, thus getting extra support from the GoI

(11/18)

• Execution Risk:

While the company is exposed to execution risks for its underconstruction projects, the quantum of the same is coming down and remains much smaller compared to the installed capacity
base.

(12/18)

• Higher than expected IRRs in TBCB projects and Delay in tendering of projects are also some other risks.

• The company is also facing some margin pressure owing to rising crude oil prices.

(13/18)

Business outlook:

At the end of Q3FY22, the company had work in hand of ₹24,500cr, consisting of ₹7,100cr ongoing projects, ₹4,200cr of new projects and ₹13,200cr of TBCB
projects. Management expects ₹25,750cr worth of opportunities ahead under TBCB.

(14/18)

Under its Telecom business, the company has applied for license for International long distance (ILD). It completed bidding in ISTS projects under TBCB as part of transmission system strengthening scheme for evacuation of Power from Solar Energy zones in Rajasthan.

(15/18)

Q3 Performance:

• Standalone revenues came in at ₹10,000 crore, up 3% YoY

• EBITDA - ₹8,688cr

• Employee cost up 26% YoY

• PAT - ₹3,349cr

• Transmission Segment (98% of revenue) grew 3% YoY

• Target Capex for FY23 is ₹8,500cr vs ~₹7,500cr capex in FY22

(16/18)

Plans going ahead:

The company plans to foray into the smart metering infra business where it will invest in the smart meter asset development business.

It plans to foray into improving state T&D infra & invest another ₹10,000-12,000 cr over the next 4 years.

(17/18)

Shareholding Pattern:

• GOI : 51.34%
• FIIs : 29.35% vs 28.39% YOY
• DIIs : 16.02% vs 8.42% QoQ
• Public : 3.29% vs 12.05% QoQ

CMP : ₹245
P/E : 12.4%
PEG : 0.77
Int Coverage : 3.14
D/E : 1.74
ROE : 18%
Stock Price CAGR 10 years : 12%
Sales growth 10 years : 16%

(18/18)

Is this stock on your Radar?

@caniravkaria @aditya_kondawar @kuttrapali26 @MadhusudanKela @aparanjape @Anshi_________