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Power Grid share price in the red as govt may amend Electricity Act. ICICI Sec expects an upside going ahead

Power Grid share price in the red as govt may amend Electricity Act. ICICI Sec expects an upside going ahead
October 04
12:04 2021

ICICI Securities expects PGCIL to pay out greater than Rs 40 per share as dividend over FY22E-24E (60-65% on cumulative consolidated EPS of Rs 62.4 per share).

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Power Grid Corporation of India share price was trading in the red on October 4. The stock price has been in focus as the government has been working on certain amendments to the Electricity Act that will focus on reforming India’s crippling power distribution companies.

At 10:29 hours, the stock was trading at Rs 192.05, up Rs 0.25, or 0.13 percent. It has touched an intraday high of Rs 193.35 and an intraday low of Rs 190.20.

The share touched its 52-week high Rs 197.90 and 52-week low Rs 115.99 on 30 September, 2021 and 15 October, 2020, respectively.

Power Grid Corporation of India (PGCIL) is geared up to benefit from the the upcoming auctions in the transmission space, according to an ICICI Securities report.

Opportunities on the horizon:

“Over FY22-26, we expect PGCIL to incur a capex of Rs 51,600 crore and commission assets worth Rs 76500 crore, taking its gross block from Rs 2,40,000 crore in FY21 to Rs 2,80,000 crore in FY24 and Rs 3,20,000 crore in FY26. With Power Grid InvIT now listed, a ready monetisation vehicle is available to PGCIL for its operational TBCB assets. This results in freeing up of capital as well as lower debt in its books, a good combination for future capex and growth,” the research and brokring firm said.

“Since capex in transmission is expected to be steady going forward, for further growth PGCIL is looking to selectively invest in smart metering through the Rs 3,00,000-crore scheme, and in other new-age businesses including EV charging, battery energy storage, energy management, among others. Moderate capex requirement is also expected to boost dividend payouts.”

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ICICI Securities expects PGCIL to pay out greater than Rs 40 per share as dividend over FY22E-24E (60-65% on cumulative consolidated EPS of Rs 62.4 per share). Further, once 33 kV systems move into the purview of state transmission companies, we expect many of them to form JVs with PGCIL for capex in this segment, which will be a good growth opportunity for PGCIL, it said.

“We reinitiate coverage on Power Grid with buy rating and DCF-based target price of Rs 225 per share,” the research firm added.

Monetisation of TBCB assets through the InvIT to bring capital efficiency and increase dividends:

In Q1FY22, Power Grid transferred 74% of its holdings in 5 SPVs to Power Grid Infrastructure Investment trust (PG InvIT) with a gross block of Rs 7,240 crore (balance 26% holdings in each SPVs to be transferred to the InvIT over Feb’22-Jan’24). The trust was listed at a valuation of Rs 9,100 crore. The firm received Rs 4,110 crore (out of the fresh issue of Rs 4,990 crore; OFS was for Rs 2,740 crore) and booked Rs 3,170 crore as profits during Q1FY22. As a ready investment vehicle, the trust stands to benefit as a preferred route for monetisation of PGCIL’s operational TBCB assets.

Valuations and dividend payout outlook:

ICICI Securities has reinitiated coverage on Power Grid with buy rating and discounted cash flow based target price of Rs 225 per share. The stock is currently trading at FY24E P/E of 8.8x, P/B of 1.6x, with a dividend yield of 7.8%.

Key risks:

Slower-than-expected pace of capitalisation

Inability to win projects

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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