We retain our overweight rating on PowerGrid and raise our DCF-based price target to R149 (earlier R123), incorporating increased PAT estimates for FY15-16 (by c4% each year on our expectation of 15% higher asset commissioning in the 12th Plan). We raise our earnings estimates marginally for on hopes of better asset commissioning over the next three years.
PowerGrid's capex at cR2,200 crore continued to lead capitalisation of R1,770 crore in FY14. However, a significant portion of CWIP (capital work in progress) is currently installed (c60%) which should lead to rapid commissioning in the next 2-3 years. Investments in renewable energy integration and smart grid technology installations should further add to capex of PowerGrid.
There has also been an increase in focus on joint ventures with proposals of JVs with SAIL and Rashtriya Ispat Nigam under various stages of finalisation. While transmission licence for the JV with Bihar has been received, that with Orissa is still under discussion.
PowerGrid has been cautious in bidding for the tariff based competitively bid projects (TBCB), winning six of the 15 projects it bid for. While work on two of them has commenced, two of the SPVs have been acquired recently in 2014. The Vemagiri project has been put on hold by CERC.
Working capital for PowerGrid continues to be stable with only R350 crore of receivables outstanding for more than 60 days.