>POWER GRID CORPORATION (ICICI DIRECT)

Aggressive XII plan makes it a high voltage proposition…

Powergrid is a Navratna public sector enterprise and a near monopoly play in the power transmission market wheeling about 45% of the total power generated within the country. It is the notified central transmission utility operating 71,500 ckm of transmission network with a transformation capacity of 79,500 MVA and is having an interregional power transfer capacity of 20,800 MW. Powergrid has diversified into telecom business having established a 20,000 km
telecom network and it also offers consultancy business.

■ Aggressive growth lined up
Focus of the sector is likely to shift towards the XIIth five year plan in the near future from the present XIth plan. Overall inter-regional power transfer capacity is expected to grow ~5.3 fold from 14,100MW at the start of the XIth five year plan to 75,000MW by the end of XIIth five year plan.

■ Implementation of new tariff policy will bolster performance
New CERC policy has improved the return on equity for the company from 14% to 15.5% which will improve the accounting return ratios as well for the company. This will continue to bolster
the operating performance in near term.

■ Historical performance
On a quarterly basis the company is maintaining a good momentum In Q1FY10 the company reported a revenue of Rs 1,822.3 crores compared to Rs 1,407.9 crores signifying a growth of 29% YoY and also reported a bottomline of Rs 545.2 crores compared to Rs 305.7 crores signifying a growth of 78% YoY.

■ Risk to our call
Risk to our call would be if the planned projects witness significant delays the company will loose out on the returns during the interim. Also any adverse development on the regulatory front will impact our investment case.

Valuation
Power grid is a virtual monopoly trading at 3.1x on the trailing FY09 BV. Power grid enjoys an ROE of ~13% and with a significant growth prospect on offer due to aggressive XIIth five year plan. Visibility of multifold growth prospect makes it a safe bet to play for the inherent
growth on offer in the power sector.

To see full report: POWER GRID CORPORATION