Power Grid Corp. of India Ltd’s (PGCIL) fourth quarter results weren’t that impressive. Revenue for the three months ended 31 March fell 1% from a year earlier. Although reported net profit grew 37% from a year ago, earnings were boosted by one-offs such as adjustments for charges taken in the previous quarters.
Tariff arrears and treasury income from the unutilized portion of the money raised through a follow-on public offer also added to profit. However, earnings before interest, tax, depreciation and amortization rose only 2%, indicating that things are not that rosy for the firm operationally.
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One reason for the lower-than-expected operational performance is the slower rate of commissioning and completing projects during the last fiscal. PGCIL capitalized only Rs540 crore of projects in the fourth quarter, compared with Rs6,830 crore in the previous nine months.
Motilal Oswal Financial Services Ltd reckons that the lower rate of capitalization is due to the delay in new power generation projects coming on stream. The firm missed its capitalization guidance for the last fiscal.
A slowdown in commissioning projects also means that future earnings may be affected, prompting many brokerages to cut their profit forecasts for the next fiscal. The firm has planned capital expenditure of Rs18,500 crore for the current fiscal, but the question is whether it will be able to achieve those targets.
Yes, India is a power-hungry country, but capacity addition in generation projects has not happened as fast as it should have been because of reasons ranging from environmental clearance delays to land acquisition problems to fuel supply issues. That, plus the fact that many assets will be commissioned only in the second half of fiscal 2012, casts a shadow over the next couple of quarters.
The stock is largely seen as a defensive bet since it’s an entity whose minimum return on equity is protected by government regulations. However, lower visibility of generation projects and given the nature of these projects—some of them are so large that even a small delay could significantly affect growth—investors have shown their displeasure by hammering the stock 4% since earnings were announced on Tuesday.
Graphic by Yogesh Kumar/Mint
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