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Spark Capital: PGCIL - 3QFY13 Results Review




Spark Capital Advisors(India) Private Limited


20 Feb 2013





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Operationally in-line quarter; maintain Add on strong demonstration of capex growth PGCIL reported a good quarter with net-profits of Rs. 11.29bn up 44% yoy, primarily due to a robust growth in the transmission income which grew by 41% yoy. Adjusting for the exchange rate variation of Rs. 225mn the net profits stand at Rs. 11.10bn for the quarter. Asset Capitalization of transmission assets in 3QFY13 has been ~Rs. 25.9bn compared to ~Rs. 25.0bn in 2QFY13 and ~Rs. 22.3bn in 3QFY12; it has been ~Rs. 93.5bn for 9MFY13. Capitalization plan for FY13 stands at ~Rs. 170bn. Capital expenditure (capex) in 3QFY13 has been ~Rs. 55.4bn and has been ~Rs. 120bn for 9MFY13. Capex guidance for FY13 stands at >Rs. 200bn with overall 12th Plan capitalization guidance at Rs. 1tn, representing a >80% jump vs the corresponding 11th Plan target. Even if we assume only a ~80% achievement-plan ratio, it gives a robust growth outlook over the long term (FY13-FY17E) ~41% of the revenues booked in the quarter were on the back of provisional tariffs rather than final tariff orders, while in 3QFY12 it was ~14%; we notice that the proportion of revenues booked based on final tariff orders improves by the end of the year (only ~20% of revenues in FY12 was based on provisional tariffs) due to finalization of tariff orders near the end of a year. Hence we expect a similar trend for FY13 with increased revenues in 4QFY13 which will result in net profits of >Rs. 38bn for FY13 vs. ~Rs 32bn in FY12, a 17% yoy growth. Valuation Discussion We tweak our assumption of total capex for FY13 to ~Rs. 170bn (earlier ~Rs. 150bn) incorporating the current quarter’s performance, as compared to management’s guidance of ~Rs. 200bn. Based on these conservative numbers we value the stock at 1.5x our FY15E book value yielding a new target price of Rs. 111/ share (we cut the multiple from 2x earlier due to the recent stock correction on concerns of slowing growth and dependence on more capital). The stock has traded above 1.5x P/BV multiple for 100% of the time in the last 4 years. At CMP of Rs. 105/ share the stock is trading at ~1.4x of our FY15E book value, close to our target price. We like the Company’s improved earnings growth outlook, low operational risks, fixed-RoE business model, availability based tariffs and limited receivable risks. Hence maintain our Add rating with a target price of Rs. 111/ share.

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