For 2QFY2016, Power Grid Corporation of India (PWGR) reported a 16.8% yoy
increase in transmission revenues to Rs4,708cr, which is 3.5% below our estimate
of Rs4,878cr, on account of lower than expected capitalisation. For the quarter,
capitalisation stood at Rs5,053cr, well below our estimate of Rs6,246cr.
Capitalisation was expected to remain strong on account of spill-over in the
commissioning of certain projects from 1QFY2016 to 2QFY2016 and the
commissioning of the Biswanath Chariyali – Agra transmission line in 2QFY2016.
The company incurred a capex of Rs5,088cr during the quarter, which is higher
than our estimate of Rs4,850cr. We reduce our FY2016 capitalisation estimate to
Rs21,991cr, as against Rs22,257cr earlier.
Lower operating expenses as a percentage of revenues and higher consultancy
income helped the company in improving its EBITDA margin by 188bp yoy to
87.8%. In terms of operating performance, the impact of lower than expected
revenue was partially offset by operating efficiencies, with transmission and
employee expenses coming in lower than expected. The EBITDA came in at
Rs4,318cr, as against our estimate of Rs4,368cr.
Outlook and valuation
We have reduced our estimates marginally to factor in the lower-than-expected
capitalisation in 2QFY2016. We expect PWGR to report a revenue and EBITDA
CAGR of ~16% (vs 17% earlier) and the net profit to grow at a CAGR of 17%
(vs 18% earlier) over FY2015-17E. At the current market price of Rs132, the stock
trades at a P/BV of 1.6x and 1.4x its FY2016E and FY2017E BV of Rs82 and Rs92,
respectively. We reduce our target price to Rs165 on the stock, based on ~1.8x
FY2017E BV, implying a 26% upside from the current levels. We reiterate our Buy
rating on the stock.

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