Utilities – 1st April 2011

• Power Grid is a central transmission utility (CTU) with a mininavratna status. It owns and operates most of India’s interstate and inter-regional power transmission systems. The government has identified it as a nodal agency to set up inter-regional transmission capacity in India. Capacity as at March 2010 was 22,400MW. It aims to ramp up capacity to 37,000MW by FY12.
• CERC has recently approved setting up of nine high speed transmission corridors (HSTCs). PGCIL is setting up these corridors, aimed at evacuating electricity from 38 private sector players putting up an aggregate generation capacity of ~42GW. Business visibility for PGCIL has improved meaningfully.
• We expect PGCIL to achieve the capex of Rs550b targeted under the Eleventh Plan, despite meaningful delays in generation capacity additions, given the incremental capex towards HSTCs.
• PGCIL is exploring possibilities of entering the telecom tower business. It has ~150,000 towers; The revenue potential of this business could possibly be Rs4.5b- 5b. Given that a large part could possibly be shared with distribution utilities, the residue value with PGCIL may not be meaningful.

Valuation and view:

• We expect PGCIL’s regulated asset base (RAB) to increase from Rs113b as at March 2010 to Rs173b by FY12 (up 50%+), with projects of ~Rs200b being commissioned and capitalized in this period. We expect the company to report a net profit of Rs26.6b in FY11 (up 15%) and Rs33.3b in FY12 (up 25%) We maintain Buy with a target price of Rs.123.

CMP (Rs.) 105
MBP (Rs.) 110
Face Value 10
Equity Shares (Mn) 4,629.7
52-Week Range (H/L) 120 / 92
M.Cap. (Rs b) 484.7