A week ago, Power Grid Corp. of India Ltd announced an estimated Rs1,600 crore investment into grid strengthening projects, to be executed over 24-32 months across various regions. Analysts are sceptical about implementation, though, and expect a shortfall in the company’s targeted capex of Rs11,500 crore this fiscal year by nearly half due to execution delays, which of course delay revenue accretion and impact profitability.
In fact the PowerGrid stock has gone nowhere in the last eight months despite the strong rally in the market precisely because of concerns over the delay in commissioning of new assets and the lack of clarity over how it will fund its ambitious expansion plans. The stock, which was around Rs114 at the end of May, is now trading at around Rs105.
During the 11th Plan, the company has capex plans of Rs55,000 crore (by 2012). Analysts point out that because the generation projects have been delayed, PowerGrid’s transmission projects too are facing setbacks. This results in slowing the addition to regulated equity and brings down the return on equity. A research note from India Infoline Ltd in early October pointed out that the company has two options to fund its capex requirements: either go in for a follow-on public offer (FPO), or opt for additional debt. The latter will negatively impact returns. Reports say that the follow-on public offer will raise around Rs3,000 crore early next fiscal.
The company’s telecom business, which was expected to break even in 2008-09, reported a small profit at the profit before tax level in the September quarter. But both telecom and the consultancy are too small and the transmission business accounted for 95% of the firm’s profit before tax in the last quarter.
Graphics: Sandeep Bhatnagar / Mint
Analysts’ consensus is that revenues for FY10 could grow 23-25% from Rs6,676 crore in FY09. A higher rate of growth will again depend on the extent to which the company can commercialize its assets. For now, the earnings per share estimate for FY10 is around Rs5, marginally higher than Rs4 in FY09. Besides, the current market price of Rs106 is nearly three times its FY10 book value per share—also on the higher side. If there is an FPO offer as expected by analysts, there could be an upside in the share price.
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