RESULTS REVIEW 3QFY17 11 FEB 2017

Power Grid Corporation

BUY
INDUSTRY POWER Hunky-dory
CMP (As on 10 Feb 2017) Rs 200 Power Grids (PWGR) 3QFY17 PAT at Rs 19.3bn Key Updates
Target Price Rs 231 (+19.6% YoY) was marginally ahead of our Champa-Kurukshetra HVDC Phase-1 line of Rs
Nifty 8,794
estimates, led by 71%/42% YoY growth in 60bn is expected to be commissioned during
Consultancy/Telecom EBIT. Core T&D performance 4QFY17. As against ~4,650 ckm transmission line
Sensex 28,334
was in line with our estimates. Capex/capitalisation commissioned in 9mFY17, mgmt is targeting to
KEY STOCK DATA for 3QFY17 stood at Rs 52/68bn. While 9mFY17 commission a ~4,750 ckm transmission line in
Bloomberg PWGR IN capitalisation stands low at Rs 160bn, the same has 4QFY17E. With capitalisation of Rs 207bn until
No. of Shares (mn) 5,232
improved significantly in 4QFY17 (Jan-17 YTD Jan-17 YTD (excl HVDC line), the company is well
capitalisation stands at Rs 207bn). Consequently, on track to achieve its guidance of Rs 300bn
MCap (Rs bn) / ($ mn) 1,046/15,646
we maintain our estimate of Rs 300bn capitalisation in FY17E.
6m avg traded value (Rs mn) 931 capitalisation in FY17E. Investments to the tune of Rs 2.6tn is envisaged
STOCK PERFORMANCE (%) PWGRs business model has the right balance of under the 13th plan (FY18-22E) in the Power T&D
52 Week high / low Rs 209/129 defence and growth, coupled with solid cash flow space. With increasing focus on renewable and
3M 6M 12M generation. It has projects worth Rs 1.4tn under grid stability, we believe there is adequate
Absolute (%) 6.1 14.6 39.4
execution, providing a multi-year visibility on comfort on these investment plans going ahead.
growth (without dilution risk). In the environment We estimate capitalisation to remain strong at Rs
Relative (%) 3.1 12.6 20.2
of falling interest rates, PWGRs business model 280bn for FY18/19E.
SHAREHOLDING PATTERN (%) becomes all the more compelling. Annual operating
Promoters 57.90 cash flows of Rs 250bn and RoE of ~17% makes a Near-term outlook: Healthy capitalisation led
strong case for premium valuations. Reiterate BUY steady growth in earnings for 4QFY17E is likely to
FIs & Local MFs 8.25
with TP of Rs 231/sh (2.0x Dec-18 BV). drive the stock upwards. Reiterate BUY.
FIIs 26.77
Public & Others 7.08 Financial Summary - Standalone
Source : BSE
Year Ending March (Rs bn) 3QFY17 3QFY16 YoY (%) 2QFY16 QoQ (%) FY15 FY16 FY17E FY18E FY19E
Net Sales 66.30 54.07 23 62.55 6 171.77 208.02 257.53 298.84 343.21
EBITDA 59.59 47.97 24 56.04 6 147.98 182.81 230.07 266.14 305.15
Pawan Parakh, CFA APAT 19.30 16.14 20 18.76 3 49.97 59.62 76.41 89.95 102.58
pawan.parakh@hdfcsec.com Diluted EPS (Rs) 3.7 3.1 20 3.6 3 9.6 11.4 14.6 17.2 19.6
+91-22-6171-7314 P/E (x) 20.9 17.5 13.7 11.6 10.2
Ashutosh Mehta, ACA P/B(x) 2.7 2.4 2.2 1.9 1.7
ashutosh.mehta@hdfcsec.com RoE 13.8 14.7 16.7 17.3 17.5
+91-22-3078-8241 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>
 PGCIL : RESULTS REVIEW 3QFY17

Quarterly Financials Snapshot - Standalone

(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Net Sales 66,298 54,066 23 62,548 6
Transmission Expenses 3,576 3,651 3,954
Employee And Other Expenses 3,130 2,449 2,553
EBITDA 59,592 47,966 24 56,041 6
Interest Cost 16,426 12,875 15,875
Depreciation 19,653 15,805 18,769
Core T&D revenue registered
Other Income 1,578 983 2,253
strong growth of 22% YoY.
PBT 25,090 20,268 24 23,651 6
Consultancy and Telecom
Tax 5,202 4,127 4,888
business grew 41% and 27%
Reported PAT 19,300 16,131 20 18,721 3
YoY respectively. E/o items 0 10 42
APAT 19,300 16,141 20 18,762 3
Source: Company, HDFC sec Inst Research

Margin Analysis - Standalone

3QFY17 3QFY16 YoY (bps) 2QFY17 QoQ (bps)
Transmission Expenses as % of Net Sales 5.4 6.8 -136 6.3 -93
Employee Expenses as % of Net Sales 4.7 4.5 19 4.1 64
EBITDA Margin (%) 89.9 88.7 117 89.6 29
Net Profit Margin (%) 29.1 29.9 -74 30.0 -89
Tax Rate (%) 20.7 20.4 20.7
Source: Company, HDFC sec Inst Research

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 PGCIL : RESULTS REVIEW 3QFY17

Segmental Quarterly Performance - Standalone

(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Segmental Revenues (including allocable other income)
- Transmission 64,113 52,445 22 61,007 5
- Consultancy 1,623 1,153 41 1,542 5
- Telecom 1,444 1,137 27 1,433 1
Total (After Deducting Inter-segment Revenue) 67,028 54,626 23 63,847 5
Segmental EBIT
EBIT margin improvement was - Transmission 38,494 31,396 23 36,750 5
witnessed across the 3 - Consultancy 1,324 773 71 1,095 21
segments (viz Transmission, - Telecom 768 542 42 684 12
Consultancy and Telecom) Total 40,585 32,711 24 38,529 5
Segmental Margins (EBIT) (%)
- Transmission 60.0 59.9 18 60.2 (20)
- Consultancy 81.6 67.1 1,450 71.0 1,058
- Telecom 53.1 47.7 548 47.7 543
Source: Company, HDFC sec Inst Research

Capex and Capitalisation

Rs bn Capex Commissioning
200
180 172
While 9mFY17 capitalisation
160
stands low at Rs 160bn, we
140
expect the same to improve
120
significantly in 4QFY17 (Jan-17
100
YTD capitalisation stands at Rs 72
80 64 64 67 68
207bn). 58
49 50 50 51 50 54 57
50 56 53 52
60 48 48 45
40 25
20
0
1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
Source: Company, HDFC sec Inst Research

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 PGCIL : RESULTS REVIEW 3QFY17

Key Assumptions and Financials

(Rs bn) FY15 FY16 FY17E FY18E FY19E
We estimate capitalisation to Capex 225 226 225 230 230
remain strong at Rs 280bn for Capitalisation 218 318 300 280 280
FY18/19E
Revenue 172 208 258 299 343
EBITDA 148 183 230 266 305
PAT 50 60 76 90 103
Source: Company, HDFC sec Inst Research

Peer Valuations
MCap CMP TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) ROE (%)
Company Rating
(Rs bn) (Rs) (Rs) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
NTPC Ltd 1,417 172 BUY 201 12.2 13.5 15.9 14.1 12.7 10.8 11.6 10.8 9.7 10.9 11.3 12.2
PGCIL 1,046 200 BUY 231 14.6 17.2 19.6 13.7 11.6 10.2 9.5 8.4 7.5 16.7 17.3 17.5
CESC Ltd 107 806 NEU 822 59.8 63.5 66.7 13.5 12.7 12.1 9.0 8.7 8.2 8.9 8.9 8.8
JSW Energy Ltd 103 63 NEU 59 3.8 4.1 5.1 16.6 15.3 12.2 7.1 7.3 6.8 7.1 7.6 9.1
Source: HDFC sec Inst Research

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 PGCIL : RESULTS REVIEW 3QFY17

Income Statement - Standalone Balance Sheet - Standalone

(Rs mn) FY15 FY16 FY17E FY18E FY19E (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 171,772 208,022 257,530 298,842 343,210 SOURCES OF FUNDS
Growth (%) 12.8 21.1 23.8 16.0 14.8 Share Capital 52,316 52,316 52,316 52,316 52,316
Transmission, Admin and Other Reserves 329,350 375,024 433,095 501,454 567,105
13,552 15,409 16,640 20,801 24,961
Expenses Total Shareholders Funds 381,666 427,340 485,411 553,770 619,420
Employee Expenses 10,237 9,805 10,823 11,905 13,096 Deferred Revenue 47,629 57,239 62,962 69,259 76,184
Total Expenses 23,788 25,214 27,463 32,706 38,056 Long Term Debt 938,446 1,057,844 1,127,224 1,218,018 1,302,537
EBIDTA 147,984 182,808 230,066 266,136 305,154 Short Term Debt 12,000 20,000 20,000 20,000 20,000
EBIDTA % 86.2 87.9 89.3 89.1 88.9 Total Debt 950,446 1,077,844 1,147,224 1,238,018 1,322,537
EBIDTA Growth % 14.2 23.5 25.9 15.7 14.7 Deferred Taxes 24,722 24,894 24,894 24,894 24,894
Depreciation 50,854 61,828 76,141 87,003 99,603 Long Term Provisions &
16,781 19,884 22,867 25,153 27,669
EBIT 97,130 120,981 153,925 179,133 205,551 Others
Other Income (Including EO Items) 5,557 5,437 6,750 6,750 6,750 TOTAL SOURCES OF
1,421,243 1,607,200 1,743,358 1,911,094 2,070,704
Interest 39,793 50,230 64,562 72,743 83,271 FUNDS
PBT 62,894 76,188 96,112 113,140 129,030 APPLICATION OF FUNDS
Tax 13,394 15,920 19,703 23,194 26,451 Net Block 1,027,282 1,250,172 1,375,441 1,568,438 1,748,836
RPAT 49,500 60,268 76,409 89,947 102,578 CWIP 432,496 369,709 395,484 345,484 295,484
EO (Loss) / Profit (Net Of Tax) 471 (647) - - - Investments 9,264 8,069 8,069 8,069 8,069
APAT 49,971 59,621 76,409 89,947 102,578 LT Loans & Advances 36,520 56,878 59,722 65,694 72,263
APAT growth % 10.6 19.3 28.2 17.7 14.0 Total Non-current Assets 1,505,562 1,684,828 1,838,716 1,987,685 2,124,652
Adjusted EPS (Rs) 9.6 11.4 14.6 17.2 19.6 Inventories 7,178 8,237 10,761 12,487 14,341
EPS growth % 10.6 19.3 28.2 17.7 14.0 Debtors 21,187 27,380 31,764 36,859 42,332
Source: Company, HDFC sec Inst Research Other Current Assets 28,453 39,308 43,239 47,563 52,319
Cash & equivalents 20,630 24,537 16,470 44,109 70,866
Total Current Assets 77,447 99,462 102,233 141,018 179,857
Creditors 3,930 3,139 4,275 4,960 5,697
Other Current Liabilities &
157,836 173,950 193,317 212,649 228,109
Provns
Total Current Liabilities 161,766 177,089 197,592 217,609 233,806
Net Current Assets (84,319) (77,628) (95,359) (76,591) (53,948)
TOTAL APPLICATION OF
1,421,243 1,607,200 1,743,358 1,911,094 2,070,704
FUNDS
Source: Company, HDFC Sec Inst Research

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 PGCIL : RESULTS REVIEW 3QFY17

Cash Flow Statement - Standalone Key Ratios - Standalone

(Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 62,894 76,188 96,112 113,140 129,030 PROFITABILITY %
Non-operating & EO items (6,028) (4,790) (6,750) (6,750) (6,750) GPM 92.1 92.6 93.5 93.0 92.7
Interest 39,793 50,230 64,562 72,743 83,271 EBITDA margin 86.2 87.9 89.3 89.1 88.9
Depreciation 50,854 61,828 76,141 87,003 99,603 APAT margin 29.1 28.7 29.7 30.1 29.9
Working capital change 12,103 (20,039) 9,802 5,186 60 RoE 13.8 14.7 16.7 17.3 17.5
Tax Paid (13,394) (15,920) (19,703) (23,194) (26,451) Core RoCE (RoIC) 5.9 6.5 7.4 8.0 8.5
Other operating items 2,746 9,782 5,724 6,296 6,926 RoCE 6.5 7.0 8.0 8.4 8.8
OPERATING CASH FLOW (a) 148,968 157,278 225,889 254,425 285,688 EFFICIENCY
Tax rate % 21.3 20.9 20.5 20.5 20.5
Capex (245,788) (221,930) (227,186) (230,000) (230,000)
Fixed Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1
Free Cash Flow (96,820) (64,652) (1,297) 24,425 55,688
Inventory (days) 15.3 14.5 15.3 15.3 15.3
Investments 733 8,069 8,069 8,069 8,069
Debtors (days) 45.0 48.0 45.0 45.0 45.0
Non-operating Income 6,028 4,790 6,750 6,750 6,750
Other Current Assets (days) 60.5 69.0 61.3 58.1 55.6
INVESTING CASH FLOW (b) (239,027) (213,861) (219,117) (221,931) (221,931) Payables (days) 8.4 5.5 6.1 6.1 6.1
Debt Issuance/(Repaid) 118,747 127,399 69,380 90,794 84,518 Other Current Liab & Provns
Interest (39,793) (50,230) (64,562) (72,743) (83,271) 335.4 305.2 274.0 259.7 242.6
(days)
FCFE (17,866) 12,517 3,521 42,476 56,936 Cash Conversion Cycle (days) (223.0) (179.3) (158.5) (147.4) (132.7)
Share Capital Issuance - - - - - Debt/EBITDA (x) 6.4 5.9 5.0 4.7 4.3
Dividend (12,320) (14,502) (18,338) (21,587) (36,928) Net D/E (x) 2.4 2.5 2.3 2.2 2.0
FINANCING CASH FLOW (c) 66,634 62,667 (13,521) (3,536) (35,681) Interest Coverage (x) 2.4 2.4 2.4 2.5 2.5
NET CASH FLOW (a+b+c) (23,425) 6,084 (6,748) 28,958 28,077 PER SHARE DATA (Rs)
Closing Cash & Equivalents 20,630 24,537 16,470 44,109 70,866 EPS 9.6 11.4 14.6 17.2 19.6
Source: Company, HDFC sec Inst Research CEPS 19.3 23.2 29.2 33.8 38.6
Dividend 2.0 2.3 2.9 3.4 5.9
Book Value 73.0 81.7 92.8 105.9 118.4
VALUATION
P/E (x) 20.9 17.5 13.7 11.6 10.2
P/BV (x) 2.7 2.4 2.2 1.9 1.7
EV/EBITDA (x) 13.4 11.5 9.5 8.4 7.5
EV/Revenues (x) 11.5 10.1 8.5 7.5 6.7
OCF/EV (%) 7.5 7.5 10.4 11.4 12.4
FCF/EV (%) (4.9) (3.1) (0.1) 1.1 2.4
FCFE/Mkt Cap (%) (1.7) 1.2 0.3 4.1 5.4
Dividend Yield (%) 1.0 1.2 1.5 1.7 2.9
Source: Company, HDFC sec Inst Research

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 PGCIL : RESULTS REVIEW 3QFY17

RECOMMENDATION HISTORY
Power Grid TP Date CMP Reco Target
250 13-May-16 142 BUY 175
30-May-16 151 BUY 179
17-Aug-16 175 BUY 196
200 11-Feb-17 200 BUY 231

150
Rating Definitions
100
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Dec-16
Oct-16
Aug-16
Apr-16

Nov-16

Jan-17
Feb-16

Sep-16

Feb-17
May-16

Jun-16

Jul-16
Mar-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 PGCIL : RESULTS REVIEW 3QFY17

Disclosure:
We, Pawan Parakh,CFA & Ashutosh Mehta, ACA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

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HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,
Mumbai - 400 013
Board : +91-22-6171 7330
www.hdfcsec.com
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