CMP 143.00

Target Price 165.00

ISIN: INE752E01010

JUNE 11th

, 2015

POWER GRID CORPORATION OF INDIA LTD

Result Update (PARENT BASIS): Q4 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector Power

BSE Code 532898

Face Value 10.00

52wk. High / Low (Rs.) 159.00/121.00

Volume (2wk. Avg. Q.) 1858000

Market Cap (Rs. in mn.) 748117.37

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY15A FY16E FY17E

Net Sales 171772.30 190151.94 208406.52

EBITDA 153541.10 170472.29 187308.45

Net Profit 49791.70 55565.82 60942.94

EPS 9.52 10.62 11.65

P/E 15.02 13.46 12.28

Shareholding Pattern (%)

1 Year Comparative Graph

POWER GRID CORP INDIA LTD BSE SENSEX

SYNOPSIS

Power Grid Corporation Of India Limited own and

operate more than 116117 Ckt. kms network of

transmission lines, 233209 MVA transformation

capacity and 193 nos. substations.

The company’s net sales grew by 18% y-o-y and stood

at a record of Rs. 47032.20 million for Q4 FY15

compared to Rs. 39862.80 million for the

corresponding quarter last year.

In Q4 FY15, net profit of the company stood at Rs.

14124.80 million, an increase of 20.13% y-o-y against

Rs. 11758.40 million in Q4 FY14.

Profit before interest, depreciation and tax was at Rs.

42647.90 million in Q4 FY15 as against Rs. 35804.60

million in the corresponding period of the previous

year.

The company has recommended final dividend @

13.1% i.e., Rs. 1.31/- per share on face value of Rs.

10.00/- each for the financial year 2015.

Investment approved by the company for Creation of

400 / 220kV Substations in NCT of Delhi during 12th

Plan Period (Part-B1)' at an estimated cost of Rs.

7803.30 mn.

The company approved, Investment for Transmission

System for Ultra Mega Solar Park in Anantpur District,

Andhra Pradesh - Part A (Phase-I)’ at an estimated

cost of Rs. 3129.40 mn.

Power Grid Corporation of India Ltd has acquired

‘Vindhyachal Jabalpur Transmission Ltd’, the Special

Purpose Vehicle on February 26, 2015.

Net Sales and PAT of the company are expected to

grow at a CAGR of 13% and 10% over 2014 to 2017E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Power Gird Corporation of India Ltd 143.00 748117.37 9.52 15.02 1.96 20.00

PTC India Ltd 69.15 20469.00 6.86 10.08 0.75 22.00

Tata Power Company Ltd 76.10 205822.00 3.74 20.35 1.44 130.00

NTPC Ltd 138.65 1143233.60 12.48 11.11 1.33 25.00

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q4 FY15,

Power Grid Corporation of India Limited

(POWERGRID) is one amongst the largest Power

Transmission utilities in the world. The Company

has reported its financial results for the quarter

ended 31st March, 2015.

The company has recorded a turnover of Rs. 47032.20 million for the 4th quarter of the financial year 2015 as

against Rs. 39862.80 million in the corresponding quarter of the previous year. EBITDA increase by 19.11% y-o-y

of Rs. 42647.90 million against Rs 35804.60 million in the prior period Last year. In Q4 FY15 net profit stood at

Rs. 14124.80 million, an increase of 20.13% y-o-y against Rs. 11758.40million in Q4 FY14. The company has

reported an EPS of Rs. 2.70 for the 4th quarter of financial year 2015 as against an EPS of Rs. 2.25 in the

corresponding quarter of the previous year.

Break up of Expenditure

During Q4 FY15, Total expenditure rose up by 23 percent mainly on account of Employee Benefit Expenses by

20% Transmission, Administration & other expenses by 17%, and Depreciation & Amortization expenses by 32%

are the main attributes for the growth of expenditure when compared to corresponding quarter of previous year.

Total expenditure stood at Rs. 20628.30 million in Q4 FY15 as against Rs. 16782.10 million in Q4 FY14.

Rs. In millions Mar-15 Mar-14 % Change

Net Sales 47032.20 39862.80 17.99

PAT 14124.80 11758.40 20.13

EPS 2.70 2.25 20.13

EBITDA 42647.90 35804.60 19.11

Break up of Expenditure

(Rs. In millions)

Q4 FY15 Q4 FY14

Employee Benefit Expenses 2815.00 2342.60

Depreciation & Amortization

Expense 14180.60 10750.30

Transmission, Administration &

Other Expenses 3879.90 3320.60

Segment Revenue

Latest Updates

� The company has approved the following:

1. 'Investment approval for Creation of 400 / 220kV Substations in NCT of Delhi during 12th Plan Period

(Part-B1)' at an estimated cost of Rs. 7803.30 mn, with commissioning schedule of 26 months to be

reckoned from the date of receipt of confirmation from the Govt, of NCT of Delhi regarding allotment of

land for Tughlakabad sub-station;

2. ‘Investment approval for Transmission System for Ultra Mega Solar Park in Anantpur District, Andhra

Pradesh - Part A (Phase-I)’ at an estimated cost of Rs. 3129.40 mn, with commissioning schedule of 12

months from the date of investment approval with best efforts matching with the commissioning of

associated solar power plant; except that +/-100 MVAR STATCOM at NP Kunta Pooling Station will be

delivered along with Phase - II of the project.

� Power Grid Corporation of India Ltd has acquired ‘Vindhyachal Jabalpur Transmission Limited’, the Special

Purpose Vehicle on February 26, 2015 from REC Transmission Projects Company Limited (the Bid Process

Coordinator). The transmission system comprising 765kV D/C transmission line is to traverse the State of

Madhya Pradesh and is to be constructed over a period of 40 months.

� The company has recommended final dividend @ 13.1% i.e., Rs. 1.31/- per share on face value of Rs. 10.00/-

each for the financial year 2015.

� Acquisition of Gadarwara (A) Transco Limited and Gadarwara (B) Transmission Limited by POWERGRID

Corp of India Ltd under Tariff Based Competitive Bidding.

� The company has accorded investment approvals for:

1. Creation of 400/220kV Substations in NCT of Delhi during 12th Plan Period (Part-A) at an estimated cost

of Rs. 13945.20 mn, with commissioning schedule of 26 months from the date of investment approval.

2. Sub-Station extension works associated with Eastern Region Strengthening Scheme - VII (ERSS-VIl)’ at an

estimated cost of Rs. 713.50 mn, with commissioning schedule of 24 months progressively from the date

of investment approval with best efforts matching with the completion of associated transmission lines

being implemented under Tariff Based Competitive Bidding;

3. Substation Works associated with Hyderabad (Maheshwaram) Pooling Station’ at an estimated cost of Rs.

5500.60 mn, with commissioning schedule of 36 months progressively from the date of investment

approval.

4. Transmission System associated with Solapur STPP (2x660MW) Part-A project of NTPC (Part-A)’ at an

estimated cost of Rs. 505.20 mn, with commissioning schedule of 24 months from the date of investment

approval.

COMPANY PROFILE

POWER GRID CORPORATION OF INDIA LIMITED (POWERGRID), the Central Transmission Utility (CTU) of the

country under Ministry of Power is one amongst the largest Power Transmission utilities in the world. In October

1992, the National Power Transmission Corporations name was changed to Power Grid Corporation of India

Limited.

POWERGRID is a ‘Navratna’ Company and the ‘Central Transmission Utility (CTU)’ of the country. An innovation

in Technical & Managerial fields has resulted in coordinated development of power transmission network and

effective operation and management of Regional and National Grid.

� Power System Management

The company core business is the transmission of electric power. As on 30th April 2015, company own and

operates more than 116117 Ckt kms network of transmission lines, 233209 MVA transformation capacity

and 193 nos. substations that constitutes most of India’s interstate and inter-regional electric power

transmission system and carries electric power across India. Total Inter-regional power transfer capacity is

~46,450 MW.

� Telecom

POWERGRID with its brand name ‘POWERTEL’ in Telecom business is the only utility in the Country having

overhead optic fibre network using Optical Ground Wire on power transmission lines. POWERGRID has an all

India Broad Band Telecom Network of about approx 33241Kms.

� New Business Opportunities

� Smart Grid/Smart City

� Green Energy Corridors

� Energy Efficiency

� Intra State Transmission

� Desert Power India

� Electrical Vehicle

� Distribution (Wire Business)

Business Segments

• National Long Distance

• Internet Service Provider

• Infrastructure Provider

� International Business

International Business Department is created with the objective to spread POWERGRID’s engineering

services in Power Transmission Business across the world.

Global Consultant

� Through implementation of huge transmission networks in India and abroad and by adopting latest

technology in multifarious topology and environment, POWERGRID has emerged as a renowned consultant

in Power Sector globally.

� POWERGRID has been entrusted with more than 300 consultancy assignments in India and 45 assignments

other countries and provides consultancy in the areas – Transmission; Distribution/Rural

Electrification/Sub-transmission; Load Despatch & Communication; Grid Management; Telecom & Smart

Grid.

� POWERGRID has consultancy and projects execution experience in following countries: Afghanistan,

Bangladesh, Bhutan, Ethiopia, Nigeria, Nepal, Kenya, Myanmar, Srilanka, Tajikistan, UAE

Services

a) System Engineering & Feasibility Studies

b) Environmental & Social Impact Assessment

c) Design and Engineering

d) Contract Services

e) Project Management and Construction

Supervision

f) Owner's & Lender's Engineer

g) Other Service

� Domestic Consultancy

POWERGRID has a large network of primary transmission system of 168 EHV substations and over 100600

circuit kms of transmission lines. Building upon its un-matched techno-managerial excellence in various

fields of power system, POWERGRID has been providing one stop consultancy services to State owned

utilities, Private utilities, Central Public Sector Undertakings and Government departments.

� Joint Ventures

• Power links Transmission Ltd

• Torrent Power Grid Ltd

• Jaypee Power Grid Ltd

• Parbati-Koldam Transmission Company Ltd

• North-East Transmission Company Ltd

• Teesta valley Power Transmission Ltd

• National High Power Test Laboratory Pvt.

Ltd

• Energy Efficiency Services Ltd

• Kalinga Bidyut Prasaran Nigam Private Ltd.

• Power Transmission Company Nepal Ltd.

(1st International JV )

• Bihar Grid Company Limited.

• Cross Border Power Transmission Company

Ltd.

� Subsidiaries

• Power System Operation Corporation Ltd (POSOCO).

• Vemagiri Transmission System Ltd (VTSL).

• Nagapattinam – Madhugiri Transmission Company Ltd (NMTCL).

• Vizag Transmission Ltd.

• Unchahar Transmission Limited.

• NRSS XXXI (A) Transmission Limited.

• Vindhyachal-Jabalpur Transmission Limited.

• Gadarwara(A) Transco Limited.

• Gadarwara (B) Transmission Limited.

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2014 -2017E

FY14A FY15A FY16E FY17E

EQUITY AND LIABILITES

Shareholder's Funds

Share Capital 52315.90 52315.90 52315.90 52315.90

Reserves and Surplus 292280.40 329350.00 378752.50 424202.80

1. Sub Total - Net worth 344596.30 381665.90 431068.40 476518.70

2. Deferred Revenue 45174.60 47629.10 49343.75 50824.06

Non Current Liabilities

Long term Borrowings 767902.20 893758.40 1001009.41 1101110.35

Deferred Tax Liabilities 24429.60 24721.50 25957.58 26736.30

Other Long Term Liabilities 13373.00 10978.80 9551.56 8596.40

Long Term Provisions 5243.70 5802.30 6359.32 6931.66

3. Sub Total - Non Current Liabilities 810948.50 935261.00 1042877.86 1143374.71

Current Liabilities

Short Term Borrowings 27000.00 12000.00 6600.00 5148.00

Trade Payables 3290.70 3929.70 4519.16 4971.07

Other Current Liabilities 155200.40 190403.60 218012.12 241993.46

Short Term Provisions 9680.20 12119.50 14179.82 15881.39

4. Sub Total - Current Liabilities 195171.30 218452.80 243311.09 267993.92

Total Liabilities (1+2+3+4) 1395890.70 1583008.80 1766601.10 1938711.39

ASSETS

Non Current Assets

a) Fixed Assets 1050054.80 1295684.00 1501814.91 1685036.33

b ) Construction Stores 176253.00 130419.60 104335.68 86598.61

c) Non-current investments 8143.30 7409.90 6891.21 6477.73

d) Deferred Foreign currency fluctuation 24905.70 28415.40 31541.09 33748.97

e) Long Term loans and advances 45529.90 41778.90 38854.38 36523.11

1. Sub Total - Non Current Assets 1304886.70 1503707.80 1683437.27 1848384.75

Current Assets

Current Investments 1843.50 1854.30 1917.35 2013.21

Inventories 7124.00 7177.50 7321.05 7613.89

Trade receivables 15784.60 21186.50 25000.07 28000.08

Cash and Bank Balances 44175.20 20629.80 16091.24 16843.99

Short-terms loans & advances 4720.40 5664.20 6627.11 7289.83

Other current assets 17356.30 22788.70 26207.01 28565.64

2. Sub Total - Current Assets 91004.00 79301.00 83163.83 90326.64

Total Assets (1+2) 1395890.70 1583008.80 1766601.10 1938711.39

Annual Profit & Loss Statement for the period of 2014 to 2017E

Value(Rs.in.mn) FY14A FY15A FY16E FY17E

Description 12m 12m 12m 12m

Net Sales 152302.80 171772.30 190151.94 208406.52

Other Income 4911.30 6028.10 6751.47 7453.63

Total Income 157214.10 177800.40 196903.41 215860.15

Expenditure -22944.60 -24259.30 -26431.12 -28551.69

Operating Profit 134269.50 153541.10 170472.29 187308.45

Interest -31675.20 -39793.20 -43971.49 -48192.75

Gross profit 102594.30 113747.90 126500.80 139115.70

Depreciation -39956.80 -50854.10 -56956.59 -62937.03

Profit Before Tax 62637.50 62893.80 69544.21 76178.67

Tax -17663.30 -13102.10 -13978.39 -15235.73

Net Profit 44974.20 49791.70 55565.82 60942.94

Equity capital 52315.90 52315.90 52315.90 52315.90

Reserves 292280.40 329350.00 378752.50 424202.80

Face value 10.00 10.00 10.00 10.00

EPS 8.60 9.52 10.62 11.65

Quarterly Profit & Loss Statement for the period of 30th Sept, 2014 to 30th June, 2015E

Value(Rs.in.mn) 30-Sep-14 31-Dec-14 31-Mar-15 30-Jun-15E

Description 3m 3m 3m 3m

Net sales 41785.40 43536.20 47032.20 47784.72

Other income 1307.20 1324.90 2063.40 1588.82

Total Income 43092.60 44861.10 49095.60 49373.53

Expenditure -5986.70 -6135.00 -6447.70 -6503.50

Operating profit 37105.90 38726.10 42647.90 42870.03

Interest -9890.90 -10246.70 -10376.20 -10853.51

Gross profit 27215.00 28479.40 32271.70 32016.53

Depreciation -12116.30 -13006.90 -14180.60 -14691.10

Profit Before Tax 15098.70 15472.50 18091.10 17325.43

Tax -3086.00 -3183.40 -3966.30 -2945.32

Net Profit 12012.70 12289.10 14124.80 14380.10

Equity capital 52315.90 52315.90 52315.90 52315.90

Face value 10.00 10.00 10.00 10.00

EPS 2.30 2.35 2.70 2.75

Ratio Analysis

Particulars FY14A FY15A FY16E FY17E

EPS (Rs.) 8.60 9.52 10.62 11.65

EBITDA Margin (%) 88.16% 89.39% 89.65% 89.88%

PBT Margin (%) 41.13% 36.61% 36.57% 36.55%

PAT Margin (%) 29.53% 28.99% 29.22% 29.24%

P/E Ratio (x) 16.63 15.02 13.46 12.28

ROE (%) 13.05% 13.05% 12.89% 12.79%

ROCE (%) 15.29% 15.88% 15.81% 15.81%

Debt Equity Ratio 2.31 2.37 2.34 2.32

EV/EBITDA (x) 11.15 10.63 10.19 9.80

Book Value (Rs.) 65.87 72.95 82.40 91.08

P/BV 2.17 1.96 1.74 1.57

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 143.00, the stock P/E ratio is at 13.46 x FY16E and 12.28 x FY17E

respectively.

� Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.10.62 and

Rs.11.65 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 10% over 2014 to 2017E

respectively.

� On the basis of EV/EBITDA, the stock trades at 10.19 x for FY16E and 9.80 x for FY17E.

� Price to Book Value of the stock is expected to be at 1.74 x and 1.57 x respectively for FY16E and FY17E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.165.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

Power or electricity is one of the most critical components of infrastructure affecting economic growth and well-

being of nations. The existence and development of adequate infrastructure is essential for sustained growth of

the Indian economy.

The Indian power sector is one of the most diversified in the world. Sources for power generation range from

conventional ones such as coal, lignite, natural gas, oil, hydro and nuclear power to other viable non-conventional

sources such as wind, solar, and agriculture and domestic waste. The demand for electricity in the country has

been growing at a rapid rate and is expected to grow further in the years to come. In order to meet the increasing

requirement of electricity, massive addition to the installed generating capacity in the country is required.

Market Size

The Indian power sector is undergoing a significant change that is redefining the industry outlook. Sustained

economic growth continues to drive power demand in India. The Government of India’s focus to attain ‘Power

For All’ has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing

on both market side as well as supply side (fuel, logistics, finances and manpower). The Planning Commission’s

12th Plan expects total domestic energy production to reach 669.6 million tonnes of oil equivalent (MTOE) by

2016–17 and 844 MTOE by 2021–22.

By 2030 – 35, energy demand in India is projected to be the highest among all countries according to the 2014

energy outlook report by British oil giant BP.

As of April 2014, total thermal installed capacity stood at 168.4 gigawatt (GW), while hydro and renewable

energy installed capacity totalled 40.5 GW and 31.7 GW, respectively. At 4.8 GW, nuclear energy capacity

remained broadly constant from that in the previous year.

Indian solar installations are forecasted to be approximately 1,000 megawatt (MW) in 2014, as per Mercom

Capital Group, a global clean energy communications and consulting firm.

Wind energy market of India is expected to attract about Rs 200000.00 mn (US$ 3.16 billion) of investments

next year, as companies across sectors plan to add 3,000 MW of capacity powered by wind energy.

Investment

Around 293 global and domestic companies have committed to generate 266 gigawatts (GW) of solar, wind,

mini-hydel and bio-mass based power in India over the next 5-10 years. The initiative would entail an

investment of about US$ 310-350 billion.

The industry has attracted FDI worth US$ 9,548.82 million during the period April 2000 to February 2015.

Some of the major investments made into the Indian power sector are as follows:

• Inox Wind Ltd, a subsidiary of Gujarat Fluorochemicals and a wind energy solutions provider, plans to double

its manufacturing capacity to 1,600 MW at a total investment of Rs 2000.00 mn (US$ 31.64 million) by the

end of next financial year.

• Suzlon Energy Ltd announced that it has completed installing and commissioning 350 MW of wind energy in

Brazil. This combined capacity includes projects located in the high wind states of Rio Grande do Norte and

Ceara in Brazil.

• ACME Group plans to invest Rs 6000.00 mn (US$ 94.93 million) to develop 74 MW of solar photovoltaic (PV)

power projects in Punjab.

• The Dilip Shanghvi family, founders of Sun Pharma, plans to acquire a 23 per cent stake in Suzlon Energy

with a preferential issue of fresh equity for Rs 18000.00 mn(US$ 284.8 million).

• Reliance Power Ltd has signed an accord with the Government of Rajasthan to develop 6,000 MW of solar

power projects in the state over the next 10 years.

• Global private equity (PE) fund Actis will invest US$ 230 million to create an Indian renewable energy

platform, Ostro Energy, the fund said in a press release. Ostro Energy’s first project Tejuva—a 50.4 MW wind

project—is already under construction in Jaisalmer, Rajasthan.

Government Initiatives

The Government of India has identified the power sector as a key sector of focus to promote sustained industrial

growth.

The RE-INVEST 2015 which concluded on February 17, 2015, is a significant step in making India self-reliant in

energy. The three day RE-INVEST 2015 received 2,800 delegates participating from 42 countries and saw green

energy commitments worth 266,000 MW.

Some of the initiatives taken by the Government of India to boost the power sector of India are as follows:

� A Joint Indo-US PACE Setter Fund has been established with a contribution of US$ 4 million from each side to

enhance clean energy cooperation.

� The Government of India has announced a massive renewable power production target of 175,000 MW by

2022, comprising 100,000 MW from solar power, 60,000 MW from wind energy, 10,000 MW from biomass

and 5,000 MW from small hydro power projects.

� The Union Cabinet of India has approved 15,000 MW of grid-connected solar power projects of National

Thermal Power Corp Ltd (NTPC).

� The Indian Railways has signed a bilateral power procurement agreement with the Damodar Valley

Corporation (DVC). The agreement was signed between North Central Railway and DVC. This is the first time

the railways will directly buy power from a supplier.

� US federal agencies have committed a total of US$ 4 billion for projects and equipment sourcing, one of the

biggest deals for the growing renewable energy sector in India.

� A memorandum of collaboration (MoC) was signed in New Delhi on January 20, 2015 between the Indian

Institutes of Technology (IITs) and Oil & Natural Gas Corporation (ONGC) to work towards a collective

research and development (R&D) programme for developing indigenous technologies to enhance exploration

and exploitation of hydrocarbons and alternate sources of energy.

Road Ahead

The Indian power sector has an investment potential of Rs 15 trillion (US$ 237.35 billion) in the next 4-5 years,

providing immense opportunities in power generation, distribution, transmission and equipment, said Mr Piyush

Goyal, Union Minister of Coal, Power and Renewable Energy.

The immediate goal of the government is to produce two trillion units (kilowatt hours) of energy by 2019. This

will mean doubling the current production capacity in order to achieve provide 24x7 electricity for residential,

industrial, commercial and agriculture use.

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