BackPowerGrid assets addition on track
With business environment improving, PowerGrid is likely to meet its `1.1 trillion capex during 12th Plan period
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The key yardstick for Power Grid Corp. of India Ltd’s performance from a long-term investment point of view is the company’s project capitalization or the addition to its gross fixed assets. This is an indication of commercial start-up of fresh transmission capacity and has a bearing on the company’s revenues. In the June quarter, this number was ₹ 4,878 crore, much ahead of the Street estimates.
What’s more, PowerGrid has added another ₹ 3,622 crore worth of assets after the June quarter, taking the total project capitalization till date to ₹ 8,500 crore. At this pace, the company looks set to exceed last financial year’s assets addition of ₹ 15,904 crore. Three months earlier, the management indicated that the company was looking at a target of ₹ 22,000 crore. The year-to-date performance would thus give investors some confidence that this target would be met.
That said, the company’s June quarter profit didn’t quite reflect the fact that it had grown its assets by ₹ 11,500 crore in the last nine months. Transmission revenue grew 12.3% from a year ago and just 1.4% sequentially. Earnings before interest and tax grew 7.7% from a year ago, another underwhelming number. This was owing to a 2.48 percentage point decline in margins.
The telecom and consulting segments, which together constitute 3% of the company’s revenue, disappointed. However, the earnings of these divisions are lumpy in nature.
The company’s balance sheet continues to be strong. Receivables from customers which are older than 60 days fell to ₹ 299 crore at the end of June compared with ₹ 348 crore three months earlier. The firm’s debt-to-equity ratio is also at a comfortable 70:30.
With the business environment improving, albeit slightly, PowerGrid looks on track to meet its ₹ 1.1 trillion capital expenditure during the 12th Five Year Plan (2012-17). This capex will drive the company’s earnings over the next few years. While a delay in power generation projects coming on stream remains a risk, it is undeniable that PowerGrid is best positioned to benefit from a rebound in the electricity industry. That explains the stock’s outperformance vis-à-vis the S&P BSE Sensex in the past few months. Future performance is likely to be determined by how quickly it’s able to execute its capex plans.
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