Power Grid Corporation of India Ltd. Growth moderates going forward, but a value play InvIT may re-rate the stock Fundamental Research Relative capital market strength Power Grid Corporation of India Ltd. (PGCIL), a newly accorded “Maharatna” status by the Government of India, is an electricity utility company engaged into electricity transmission through inter-state transmission system (ISTS). As on 30 th Sept. 2019, it operated a pan-India transmission network of 160,937CKms, which is around 85% of the ISTS network. This gigantic transmission network, spread over length and breadth of the country, is consistently maintained at an availability of over 99%. PGCIL transmits around 50% of the total power generated in the country and is the Central Transmission Utility of India. Investment rationale: (Page: 6-7) • Consistency in the CERC pricing regulations • Green transmission corridor - provides visibility for growth • TBCB - a vehicle for future growth • Falling works-in-hand - a temporary concern • Asset monetization via InvIT, positive for the shareholders Risk and concerns: (Page: 9) • Delay in the bidding of renewable linked transmission projects • Intense competition in the TBCB mode • Continued pressure from the government’s disinvestment exercise Valuation: (Page: 10) • We estimate PGCIL’s total operating revenue to grow at 10.7% CAGR over FY19-21 to Rs. 417,907mn, while PAT to grow at 13.4% CAGR over the same period to Rs. 127,863.4mn. EBITDA to increase by 11.3% CAGR to Rs. 362,648.5mn with 96bps expansion in the margin. With capex intensity moderating going forward, CFO is expected to grow by 23.8% CAGR. RoIC and RoE is forecasted to improve from 7.6% and 16.8%, respectively, in FY19 to 9.2% and 18.1% in FY21. • At the CMP of Rs. 189.2, PGCIL’s share is trading at TTM P/E multiple of 9.6x. Based on FY21 earning, it is trading at a P/E multiple of 7.7x i.e. earning yield of 12.9%. With earnings growth of 13.4% CAGR over FY19-21, prevailing valuation seems to be attractive. Also the setting up of InvIT could lower the incremental growth in debt, thereby leading to higher earnings for the shareholders. Thus we assign a “BUY” rating on the stock with a target price of Rs. 230.2, translating into an upside potential of 21.7%. Rajnath Yadav | Board line: +91 22 6707 9999; Ext. 912 | [email protected]1 14 th Nov. 2019 Rating matrix CMP Rs. 189.2 Face Value Rs. 10 MCAP Rs. 989,032mn Enterprise Value Rs. 2,406,575.2mn Target price Rs. 230.2 Upside potential 21.7% 52 week H/L Rs. 216.2 / 173.1 Investment horizon 12 - 18 Months Category Large cap Sector Electric Utilities Shareholding pattern as on 30 th Sept. 2019 Particulars Dec-18 Mar-19 Jun-19 Sept-19 Promoters 56.34% 55.37% 55.37% 55.37% FIIs 24.01% 25.43% 27.95% 27.76% DIIs 15.26% 14.65% 12.21% 12.50% Non institutions 4.39% 4.55% 4.47% 4.37% Standalone financial snapshot (Rs. bn) Projections FY16 FY17 FY18 FY19 FY20E FY21E Revenue 206.7 257.1 297.6 341.1 370.7 417.9 EBITDA 182.8 226.0 259.4 292.7 323.5 362.6 Adjusted PAT 59.5 75.2 82.4 99.4 104.8 127.9 EBITDA (%) 88.4% 87.9% 87.2% 85.8% 87.3% 86.8% PAT (%) 28.8% 29.3% 27.7% 29.1% 28.3% 30.6% EPS 11.4 14.4 15.8 19.0 20.0 24.4 BVPS 83.7 95.2 104.0 112.8 123.0 135.3 RoNW (%) 13.6% 15.1% 15.2% 16.8% 16.3% 18.1% RoCE (%) 7.6% 8.5% 8.4% 8.8% 10.2% 11.3% P / E 9.4 7.7 P / BVPS 1.5 1.4 EV / Sales 6.2 5.4 EV / EBITDA 7.1 6.2 P / S 2.7 2.4 BUY 90 100 110 120 13/Nov/18 13/Dec/18 13/Jan/19 13/Feb/19 13/Mar/19 13/Apr/19 13/May/19 13/Jun/19 13/Jul/19 13/Aug/19 13/Sep/19 13/Oct/19 13/Nov/19 Power Grid Corporation of India Ltd. Sensex
Power Grid Corporation of India Ltd. Growth moderates going forward, but a value play InvIT may re-rate the stock
Fundamental Research
Relative capital market strength
Power Grid Corporation of India Ltd. (PGCIL), a newly accorded “Maharatna” status by the Government of India, is an electricity utility company engaged into electricity transmission through inter-state transmission system (ISTS). As on 30th Sept. 2019, it operated a pan-India transmission network of 160,937CKms, which is around 85% of the ISTS network. This gigantic transmission network, spread over length and breadth of the country, is consistently maintained at an availability of over 99%. PGCIL transmits around 50% of the total power generated in the country and is the Central Transmission Utility of India.
Investment rationale: (Page: 6-7)
• Consistency in the CERC pricing regulations
• Green transmission corridor - provides visibility for growth
• TBCB - a vehicle for future growth
• Falling works-in-hand - a temporary concern
• Asset monetization via InvIT, positive for the shareholders Risk and concerns: (Page: 9)
• Delay in the bidding of renewable linked transmission projects
• Intense competition in the TBCB mode
• Continued pressure from the government’s disinvestment exercise Valuation: (Page: 10)
• We estimate PGCIL’s total operating revenue to grow at 10.7% CAGR over FY19-21 to Rs. 417,907mn, while PAT to grow at 13.4% CAGR over the same period to Rs. 127,863.4mn. EBITDA to increase by 11.3% CAGR to Rs. 362,648.5mn with 96bps expansion in the margin. With capex intensity moderating going forward, CFO is expected to grow by 23.8% CAGR. RoIC and RoE is forecasted to improve from 7.6% and 16.8%, respectively, in FY19 to 9.2% and 18.1% in FY21.
• At the CMP of Rs. 189.2, PGCIL’s share is trading at TTM P/E multiple of 9.6x. Based on FY21 earning, it is trading at a P/E multiple of 7.7x i.e. earning yield of 12.9%. With earnings growth of 13.4% CAGR over FY19-21, prevailing valuation seems to be attractive. Also the setting up of InvIT could lower the incremental growth in debt, thereby leading to higher earnings for the shareholders. Thus we assign a “BUY” rating on the stock with a target price of Rs. 230.2, translating into an upside potential of 21.7%.
Name Designation Mr. K. Sreekant Executive Director - Chairperson Mr. Ravi P. Singh Executive Director Mrs. Seema Gupta Executive Director Mr. Rajeev Kumar Chauhan Executive Director Mr. Tse Ten Dorji Non-Executive - Independent Director Mr. Manoj Kumar Mittal Non-Executive - Independent Director Mr. Sunil Kumar Sharma Non-Executive - Independent Director Mrs. A. R. Mahalakshmi Non-Executive - Independent Director Mr. S. K. G. Rahate Non-Executive - Nominee Director Mr. M. N. Venkatesan Non-Executive - Independent Director Mr. K. S. R. Murty Chief Financial Officer Ms. Divya Tandon Company Secretary & Compliance Officer
Shareholding pattern (as on 30th Sept. 2019):
Source: Choice Broking Research
Source: Choice Broking Research
Shareholders more than 1% (as on 30th Sept. 2019): Shareholder name Stake (%)
Republic of India 55.37% Life Insurance Corporation of India 4.89% HDFC Asset Management Co. Ltd. 3.03% Comgest SA 2.10% FIL Ltd. 2.02% SBI Funds Management Pvt. Ltd. 1.36% BlackRock Inc 1.26% Vontobel Holding AG 1.09%
PGCIL a newly accorded “Maharatna” status by the Government of India, is an electricity utility company engaged into electricity transmission through inter-state transmission system (ISTS). As on 30th Sept. 2019, it operated a pan-India transmission network of 160,937CKms, which is around 85% of the ISTS network. The company also has a transformation capacity of 383,273MVA and all-India inter-regional capacity over 99GW. More than 90% of the transmission network is above 400kV. This gigantic transmission network, spread over length and breadth of the country, is consistently maintained at an availability of over 99%. PGCIL transmits around 50% of the total power generated in the country and is the Central Transmission Utility of India.
Apart from executing transmission projects, the company is into transmission sector consultancy (both domestic and international) and telecommunications business (using existing transmission assets). As on FY19, it had an optic fiber broadband network of 60,900Kms. Currently, PGCIL is exploring new business opportunities in the area of Smart Grid/Smart City Projects, Energy Audit & Energy Efficiency, Desert Power of India/Integration of Solar Power Projects, Dedicated Transmission System for Railways & other bulk users, Off-Shore Wind Generation Integration, Distribution, Manufacturing of Transmission Products - TL Tower parts, Conductor, Insulator, etc.
As on FY19, PGCIL generated 96.1% of the gross standalone revenue from core electricity transmission segment. Consultancy and Telecom segment generated 1.8% and 2.1%, respectively, to the gross revenue.
Source: Choice Broking Research Source: Choice Broking Research
Segment wise operating revenue breakup in FY19 Segment wise EBIT breakup in FY19
Corporate structure: As on 30th Sept. 2019, PGCIL had 13 joint ventures and 18 subsidiaries. Most of the subsidiaries are the special purpose vehicles created for tariff based competitive bidding (TBCB) transmission projects.
Source: Choice Broking Research
Business model: The transmission charges of PGCIL’s assets are regulated by Central Electricity Regulatory Commission and are determined by tariff norms which are applicable for a period of five years. CERC with its notification dated 7th Mar. 2019 notified the tariff regulations applicable for inter-state transmission of electricity for the Tariff Block 2019-24, which is effective from 01.04.2019 and shall remain in force till 31.03.2024. Pursuant to the regulation (i.e. cost-plus mechanism), the company would earn 15.5% return on the regulated equity of a transmission project. Accordingly, based on the CERC transmission pricing methodology the electricity transmission charge per unit is decided by PGCIL. Similar regulated return was applicable in the past two tariff period. In the past all inter-regional transmission projects were awarded to PGCIL on this cost-plus basis on nomination basis, thus there was no competition from the private players. However with effect from Jan. 2011, the government decided that all form of power procurement would take place via TBCB route. As a result of which, PGCIL would compete with private players for biding power transmission projects. Still strategic important transmission projects are awarded to PGCIL on nomination basis. As on FY19 end, around 86.5% of the transmission projects were regulated and the rest were on TBCB basis. Thus, with stable CERC regulations, PGCIL is almost assured for generating consistent returns over the regulated equity in the next five years.
For projects being implemented under TBCB route, the tariff is not on cost plus basis and is discovered through tariff based bidding process wherein the successful bidder would be the one who has quoted the lowest levelized tariff for a period of 35 years for establishing transmission projects on a build, own, operate and maintain basis. TBCB projects are of short duration i.e. 18-20 months as compared to 24-30 months of other transmission projects. Additionally, in contrast to debt/equity ratio of 70:30 for regulated projects, the equity requirement is lower in TBCB with a debt/equity ratio of 80:20. Currently, the company has 13 wholly owned subsidiaries acquired through TBCB, of which seven of these are in commercial operation.
List of TBCB projects undertaken by PGCIL:
Source: Choice Broking Research
Project / Subsidiary Name Operational Date Levelized Tariff (Rs. mn) POWERGRID NM Transmission Ltd. Commissioned on Jan. 2019 987.0 POWERGRID Vemagiri Transmission Ltd. Terminated N/a POWERGRID Vizag Transmission Ltd. Commissioned on Sept. 2016 2,311.3 POWERGRID Unchahar Transmission Ltd. Commissioned on Dec. 2016 167.7 POWERGRID Kala Amb Transmission Ltd. Commissioned on Jul. 2017 594.3 POWERGRID Jabalpur Transmission Ltd. Commissioned on Dec. 2018 2,110.0 POWERGRID Warora Transmission Ltd. Commissioned on Jul. 2018 2,901.5 POWERGRID Parli Transmission Ltd. Commissioned on Jun. 2018 2,567.3 POWERGRID Southern Inerconnector Transmission System Ltd. Under Construction 3,592.6 POWERGRID Medinipur - Jeerat Transmission Ltd. Jul. 2020 4,986.5 POWERGRID Mithilanchal Transmission Ltd. Mar. 2021 1,385.9 POWERGRID Varanasi Transmission System Ltd. Jul. 2021 927.3 POWERGRID Jawaharpur Firozabad Transmission Ltd. Mar. 2021 538.1
Investment rationale: 1) Consistency in the CERC pricing regulations: In Mar. 2019, CERC notified the tariff regulations applicable for
transmission system used for inter-state transmission of electricity for the Tariff Block 2019-24. Broadly, the regulator has maintained continuity in the regulation by maintaining the return on regulated equity (RoE) at 15.5% for the third consecutive five year tariff plan. Overall, the regulation is neutral for PGCIL with certain positives and negatives. On positive side, the regulation addresses the O&M under-recoveries for wage hike. While on negative side, CERC has discontinued additional RoE of 0.5% on early commissioning of transmission projects. As on FY19 end, around 86.4% of the transmission assets were regulated. Thus with stable CERC regulations, PGCIL is almost assured for generating consistent returns over the regulated equity in the next five years.
2) Green transmission corridor - provides visibility for growth: Identifying one of the key constraints for renewable energy (RE) expansion, the government approved transmission projects linked to 66.5GW of the renewable power capacity, which are to be commissioned in next 2-3 years. As the gestation period of RE projects is much shorter in comparison to the implementation period of the transmission facilities, and with the revival of RE tendering, it is necessary that the present system of transmission planning and implementation for RE projects needs to be carried out in urgency so as to achieve the target set by the government. Considering the necessity, the government has accorded the above identified transmission projects as “Projects of National Importance”. The transmission works required for the 66.5GW of RE addition is estimated at Rs.433bn. Most of these projects would be awarded via TBCB mode.
3) TBCB - a vehicle for future growth: With effect from Jan. 2011, the government decided that all form of power procurement would take place via TBCB route. Earlier the company was awarded transmission projects on nomination basis (i.e. cost-plus operating model) as it was the nodal agency for executing inter-state transmission projects. With its vast experience, scale of operations, relationship with vendors and strong balance sheet, PGCIL was able to maintain its dominant position in this new business model. The government has awarded around 42 projects via TBCB till date and off these, PGCIL has won 13 projects (which is around 30% of the total TBCB projects). As of FY19, seven operational TBCB projects generated revenue of Rs. 10.6bn and profit of Rs. 1.9bn.
With new regulated transmission projects gradually slowing down, the company would have to aggressively rely on TBCB for new projects. According to the management, certain projects linked to the integration of renewable energy estimating to Rs. 115bn are in different stage of bidding. Considering its operating capabilities and its bidding success rate, we feel there is huge potential for PGCIL from TBCB projects.
4) Falling works-in-hand - a temporary concern: Since FY17, PGCIL reported decline in total work-in-hand. This can be attributed to slowdown in the awarding of transmission projects. Work-in-hand declined from Rs. 1,300bn in FY17 to Rs. 660bn in Q2 FY20. In contrast, the company maintained its capex over FY16-19, but lowered it in FY20 to the level of Rs. 150bn. Considering the capex at the subsidiary level, we anticipate the consolidated capex would be in the range of Rs. 160-170bn in FY20. As on Q2 FY20, PGCIL has balance capex of Rs. 318bn, which is around 1.9x (capex visibility till around two years) of the anticipated consolidated capex for FY20. We strongly feel that, with the award of new projects linked to green energy transmission corridor, PGCIL would reverse the decline in work-in-hand.
Investment rationale (Contd…): 5) Asset monetization via InvIT, positive for the shareholders: Recently, the company board has given in-principal
approval for asset monetization via (Infrastructure Investment Trust) InvIT mode. It intends to setup a trust by FY20 end to unlock the value of certain transmission assets. According to certain media source, PGCIL would initially begin with monetizing assets worth Rs. 100bn and depending upon on the response, it will decide on the future course of action.
As of FY19 end, the company had an asset base of around Rs. 2tn. Also in the last four year, it has generated an average operating cash flow of Rs. 193bn and made an average capex of Rs. 200bn. It has a long term debt of Rs. 1.4tn, which are mainly linked to regulated transmission assets. Anticipating lower capex requirement in future coupled with strong operating cash flow generation, PGCIL could use the proceeds from InvIT to fund future capex requirement, thereby reducing the reliance on incremental debt. Additionally, with the company acting as project and investment manager there will be additional recurring fee income. Thus relatively nil or negligible incremental debt, would cap financial expenses leading to higher earnings for the shareholders.
Recent quarterly / annual performance: Q2 FY20 quarterly performance: PGCIL’s standalone operating revenue increased by 4.8% Y-o-Y to Rs. 86,849.8mn in Q2 FY20. With decline in MAT rate from 18.5% to 15%, revenue was lower by Rs. 2,974mn. MAT is considered for grossing up of return on equity, according to the regulations by the CERC. On segmental front, the transmission segment, which contributed 95.8% to the top-line, increased by 4.2% Y-o-Y, while other segments i.e. Consultancy and Telecom increased by 25.2% and 22.7%, respectively. Sequentially, top-line declined by 1.4%. On half yearly basis, top-line increased by 6.5% Y-o-Y to Rs. 174,890.9mn in H1 FY20.
During the quarter, the company the transmission line network increased by 8.2% Y-o-Y and stood at 161,490CKm. Also the transformation capacity increased by 14.2% Y-o-Y to 393,800MVA. In Q2 FY20, capex and capitalization stood at Rs. 36,230mn and Rs. 42,210mn, respectively. Capitalization rate was healthy at 116.5% as compared to 123.6% in Q2 FY19 and 50.4% in Q1 FY20.
Total operating expenditure declined by 13.9% Y-o-Y, mainly due to 25% Y-o-Y fall in other expenses. As a result, standalone EBITDA increased by 8.3% Y-o-Y to Rs. 75,569.1mn. EBITDA margin expanded by 282bps Y-o-Y to 87%. Sequentially, EBITDA declined by 4.3%, with 268bps contraction in the margin. On half yearly basis, in H1 FY20 standalone EBITDA increased by 11.1% Y-o-Y to 154,533.3mn with a margin of 88.4 (an expansion of 365bps Y-o-Y).
With expansion in the transmission network over the last year, depreciation charge increased by 7.8% Y-o-Y, while finance cost increased by 2.9% Y-o-Y. Other income increased by 24.3%, this might be mainly due to higher dividend income from operational TBCB subsidiaries. Consequently, PBT stood at 29,308.1mn (up 16.2% Y-o-Y). After accounting for regulatory adjustments in the tune of Rs. 3,518.7mn (as compared to Rs. 11,418.8mn in Q2 FY19) and lower effective tax rate of 25.8% (as compared to 53.7% in Q2 FY19), reported PAT stood at Rs. 25,271.4mn, up by 9.4% Y-o-Y. PAT margin improved by 122bps Y-o-Y to 29.1% in Q2 FY20. Sequentially, reported PAT increased by 4.1% Y-o-Y. On half yearly basis, reported PAT increased by 8.8% in H1 FY20 with 61bps Y-o-Y expansion in margin to 28.3%.
Source: Choice Broking Research Source: Choice Broking Research
Total Operating Revenue (Rs. mn)EBITDA (Rs. mn)Adjusted PAT (Rs. mn)EBITDA Margin (%)Adjusted PAT Margin (%)RoE (%)
FY19 Annual performance: With expansion in transmission network by 3.3% (153,075CKm), PGCIL reported 14.6% rise in total operating revenue to Rs. 341,089.9mn in FY19. Transmission segment, which contributed 96.1% to the gross revenue, reported a business growth of 15.5% over FY18. FY19 capex stood at 258,070mn, while capitalization stood at 273,250mn. Capitalization rate continued to be robust for fourth consecutive year and stood over 100%. Total work-in-hand declined from Rs. 1,100bn in FY18 to Rs. 610bn in FY19. Additionally, outstanding balance capex stood at Rs. 221.7bn in FY19 as compared to Rs. 770.2bn in FY18. Total operating expenditure increased in line with top-line, thereby leading to 12.8% increase in EBITDA to Rs. 292,719.9mn. EBITDA margin contracted by 136bps in FY19 to 85.8%. Depreciation charge and finance cost increased by 12.2% and 19.8%, respectively, in FY19. On account of higher dividend from its TBCB subsidiaries, other income increased by 49.3%. As a result, FY19 PBT stood at 114,889.8mn, up 11.9% over FY18. With net tax income of Rs. 18,438.1mn (as compared to net tax expenses of Rs. 17,848.3mn in FY18) and regulatory adjustments of Rs. 33,953.7 (as compared to Rs. 2,402.0), the company reported a PAT of Rs. 99,374.2mn (an increase of 20.5% over FY18). PAT margin expanded by 143bps in to 29.1% in FY19. RoE and RoCE increased from 15.2% and 8.4%, respectively, in FY18 to Rs. 16.8% and 8.8% in FY19. Expectations over FY19-21E: With slowdown in the transmission projects, PGCIL has been reporting a fall in work-in-hand. The government has a massive investment for connecting renewable projects, which will be out for bidding in the next 12-18 months. With relatively good success rate in TBCB mode, we feel PGCIL would be able to garner most of the projects, which in turn would reverse the trend of falling work-in-hand. Considering the importance of these transmission projects, we believe that the capitalization rate would be above 100% for next 2-3 years. Also around 86.5% of the assets are regulated, which will provide revenue visibility in future. Summing it up, we are anticipating a standalone top-line growth of 10.7% CAGR over FY19-21 to Rs. 417,907mn in FY21. The growth rate would be lower than 18.7% reported in last five year period. EBITDA is likely to increase by 11.3% CAGR with almost 1ppt expansion in margin to 86.8% in FY21. On account of 6.9% rise in depreciation charge and 0.3% CAGR decline in finance cost, PGCIL is expected to report a reported PAT growth of 13.4% CAGR. ROE and RoCE is expected to increase from 16.8% and 8.8%, respectively, in FY19 to 18.1% and 11.3% in FY21.
• Delay in the bidding of renewable linked transmission projects: Since last one year the renewable sector has hardly
seen any optimism among its stakeholders. This can be attributable to certain regulatory or state government actions. Offlate we are experiencing revival in the sentiment and project bidding has started taking place. Also the government is looking to address one of the key constraints for growth by establishing transmission assets linked to the renewable projects. It has planned an investment of Rs. 433bn for the same and most of the projects would be awarded via TBCB mode. Considering the general economic sentiment, any delay in the bidding of these transmission projects would negatively impact the future performance of PGCIL.
• Intense competition in the TBCB mode: As on FY19 end, around 86.5% of the transmission assets of PGCIL were regulated, thereby assuring steady cash flow streams in future. These assets are priced to earn a RoE of 15.5%. Since Jan. 2011, all the transmission assets are executed through TBCB, except certain projects of strategic importance. Being very competitive, TBCB projects have a RoE lower than regulated assets. Currently, the proportion of business generated from TBCB is small as compared to the business generated from regulated assets. In the near-to-midterm this would not significantly impact the performance of PGCIL but would impact in long run.
• Continued pressure from the government’s disinvestment exercise: As a PSU, there is pressure on the company with respect to the disinvestment exercise of the government. As a result, despite having strong fundamentals the share price actions are muted.
There are peers having similar kind of business in domestic market. PGCIL is into power transmission, while others are into generation space. Based on above criteria, below are the pros and cons of PGCIL over its peerset. • Monopolistic position in inter-state power transmission market. PGCIL transmits around 50% of the total power
generated in the country and is the Central Transmission Utility of India. • Not impacted by fuel scarcity, which is being faced by other power generators in the peerset. • Regulatory returns are based on the availability of the transmission network. Thus not impacted by the power demand
fluctuations. • Slowdown in the transmission orders is considered as one of the key negatives for PGCIL, but it is short term pain and is
trend is expected to reverse with investment in the renewable linked transmission projects. • Its last five years top-line and PAT growth are above the peerset average. Average five year asset turnover and RoE are
also superior to peerset. Valuation: We estimate PGCIL’s total operating revenue to grow at 10.7% CAGR over FY19-21 to Rs. 417,907mn, while PAT to grow at 13.4% CAGR over the same period to Rs. 127,863.4mn. EBITDA to increase by 11.3% CAGR to Rs. 362,648.5mn with 96bps expansion in the margin. With capex intensity moderating going forward, CFO is expected to grow by 23.8% CAGR. RoIC and RoE is forecasted to improve from 7.6% and 16.8%, respectively, in FY19 to 9.2% and 18.1% in FY21. At the CMP of Rs. 189.2, PGCIL’s share is trading at TTM P/E multiple of 9.6x. Based on FY21 earning, it is trading at a P/E multiple of 7.7x i.e. earning yield of 12.9%. With earnings growth of 13.4% CAGR over FY19-21, prevailing valuation seems to be attractive. Also the setting up of InvIT could lower the incremental growth in debt, thereby leading to higher earnings for the shareholders. Thus we assign a “BUY” rating on the stock with a target price of Rs. 230.2, translating into an upside potential of 21.7%.
Working Capital & Liquidity Ratios Current Ratio (x) 0.8 0.8 1.1 1.0 0.8 0.8 Debt to Equity (x) 2.5 2.4 2.4 2.5 2.2 1.9 Net Debt to EBITDA (x) 5.8 5.1 5.0 4.8 4.2 3.6
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Choice’s Rating Rationale The price target for a large cap stock represents the value the analyst expects the stock to reach over next 12 months. For a stock to be classified as Outperform, the expected return must exceed the local risk free return by at least 5% over the next 12 months. For a stock to be classified as Underperform, the stock return must be below the local risk free return by at least 5% over the next 12 months. Stocks between these bands are classified as Neutral.
