Power Grid impresses Street with Q4 results, transmission business drives growth

Given the slowdown in capital expenditure and capitalisation (asset addition), many analysts had expected to company to report subdued financial performance.

According to Motilal Oswal Financial Services Ltd, Power Grid is estimated to have incurred capex of ₹15,300 crore and capitalised assets worth ₹18,200 crore last fiscal. This is lower than ₹25,807 crore of capex and ₹27,325 crore of capitalisation in FY19.

"Adjusted for prior period revenue, 4QFY20 profit after tax came in at ₹3,160 crore (17% higher than estimate). However, we await clarity on possible one-offs for the quarter," Motilal Oswal Financial Services said in a note.

Following the directive from the ministry of power, the board of Power Grid approved a one-time rebate of ₹1,075 crore to electricity distribution companies (discoms) and state electricity boards for the period of lockdown. The government had asked Power Grid to consider rebate on inter-state transmission charges after lockdown hit demand worsening the financial situation of discoms.

Many analysts had expected Power Grid to book part of the rebates in March quarter financials. But the company’s March quarter statement indicates that rebates will be booked against April and May billings. Even so, adjusted for this the reported earnings exceeded analysts’ estimates.

"Notes to accounts highlight that lockdown-related rebate including for March 2020 will be accounted for in the April-May 2020 billing cycle. Our 4QFY20 estimates considered ₹130 crore impact. Adjusting for this, profits came in 8% above our expectation," analysts at Jefferies India Pvt. Ltd said in a note.

The impact of the rebates will be felt in current quarter (Q1 FY21) earnings. Also with the lockdowns and related restriction hitting electricity demand and finances of discoms, Power Grid fears delays in payments from customers.

"Due to the lockdown, there has been a general fall in the demand for electricity in the country and the revenue realisation of the distribution utilities has been adversely impacted. As a result, delay in realisation of transmission charges from the customers is expected in the next financial year (FY21)," Power Grid said in a statement.

As pointed out earlier, Power Grid’s growth outlook is clouded because of the slowdown in transmission sector in India.

Clarity on project pipeline and March quarter earnings will emerge in the company’s meeting with analysts, scheduled to be held later in the day. "Our concerns remain around a weak growth outlook for the transmission bid pipeline and PGCIL's loss of market share to private sector players," added analysts at Jefferies.