For 3QFY2016, Power Grid Corporation of India (PWGR) reported a strong
23% yoy increase in transmission revenues to `5,143cr (5.5% ahead of our
estimate of `4,925cr), on account of higher than expected capitalisation.
Capitalisation for the quarter stood at `17,207cr, led by the commissioning of the
Biswanath Chariyali – Agra HVDC transmission line. Even on exclusion of this
line, total capitalisation stood at ~`9,000cr, well ahead of our expectation of
`5,126cr. Capex incurred during the quarter, at `5,368cr, was also ahead of our
estimate of `4,882cr. We raise our FY2016 capitalisation estimate to
~`32,850cr, as against ~`22,000cr earlier.
Increased operating efficiency and higher capitalisation helped the company in
improving its EBITDA margin by 213bp yoy to 88.7%. The EBITDA for the quarter
came in at `4,797cr as against our estimate of `4,482cr. The Management
maintained its capex guidance of `22,500cr and `22,550cr for FY2016 and
FY2017, respectively.
Outlook and valuation
We raise our estimates marginally to factor in the higher-than-expected
capitalisation in 3QFY2016. We expect PWGR to report a revenue CAGR of
~17% (vs 16% earlier) and the EBITDA to grow at a CAGR of 19% (vs 16%
earlier) over FY2015-17E. At the current market price of `148, the stock trades at
a P/BV of 1.8x and 1.6x its FY2016E and FY2017E BV of `82 and `92,
respectively. We retain our target price of `165 on the stock, based on ~1.8x
FY2017E P/BV, implying a 12% upside from the current levels and have an
Accumulate rating on the stock.

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