Broker’s Call: Power Grid Corporation (Buy)

BL Chennai Bureau | Updated on: Jun 30, 2022

Emkay Global

Target: ₹250

CMP: ₹212.10 

With the share of renewable energy (RE) increasing among the sources of energy across the globe, transmission capex is also expected to improve.

Higher capex towards RE, intra-state opportunities and smart metering are among the key upside triggers for Power Grid, which has been very successful in tariff-based competitive bidding (TBCB) and has earned better-than-regulated returns on some of these projects.

PWGR’s consolidated capex, after topping in FY19 (₹26,000 crore), slid to ₹9,000 crore in FY22. Capex in FY23/FY24 is likely to be in the ₹8,000-10,000 crore range. More recently, we have seen an uptick in both work at hand and opportunities in the TBCB pipeline. From Q1-FY22 to Q4-FY22, upcoming TBCB projects increased from about ₹11,000 crore to about ₹32,000 crore.

Under the regulated tariff mechanism (RTM), PWGR has been given the ₹27,000-crore 5-GW Leh-Kaithal transmission corridor, which will be completed by FY27. Given that the project is of national importance, a considerable Central Government grant is given for it. Since Ladakh is a sensitive area and PWGR has vast experience in the sector, this was awarded to PWGR under RTM.

Though the intensity of transmission might have come down in the last few years, the medium-term outlook clearly indicates about 5 per cent growth in earnings for PWGR.

Published on June 30, 2022
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