From FY13 to FY18, the revenues of Power Grid Corporation of India grew consistently at a CAGR of about 17.8 per cent. The growth was fuelled by the company’s capital expenditure to the tune of ₹20,000-25,000 crore per annum during the period.

In contrast, the growth in company’s revenues moderated to a CAGR of about 8 per cent between FY18 and FY22 due to a decline in its capex (current levels of ₹8,800 crore). This was largely due to its pre-existing expansive network, decreased orders and increased competition.

However, bids won by the company during FY23, especially in Q4, have brought some optimism.

New projects

During Q4 FY23, Power Grid won eight TBCB (tariff-based competitive bidding) projects leading to a cumulative tally of 12 TBCB projects (out of 16 projects in all) in FY23. In fact, this is the highest number of projects won by the company in the recent times.

In terms of value, while Power Grid has grabbed nearly 70 per cent of the pie, private players such as Adani Transmission, Megha Engineering and Sterlite Power have a market share of about 17 per cent, 5 per cent and 2 per cent, respectively, per JP Morgan report.

With these successful bids, Power Grid’s investment approvals for FY23 surged to ₹10,392.93 crore, which is 2.2 times its revenues in FY22 and 2.66 times last five-years’ average revenue, respectively.

Majority of these projects are expected to be commissioned by the end of FY24. However, the results of these orders can only be reaped from FY25, as the management projects to spend over ₹12,500 crore per year from the next financial year. 

Its important to note that the ₹10,392.93-crore investment for FY23 is relatively less than the peak investments reported in FY15 and FY17 at ₹28,400 crore and ₹37,700 crore, respectively.

The capex guidance for both FY23 and FY24 has been about ₹8,800 crore (similar to FY22), which is quite less than that of FY13-FY18 (₹20,000-₹25,000 crore per annum).

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However, one cannot deny the fact that the current transmission activity is better than it was in the past five years.

Current projects

As of December 2023, the company had projects worth ₹47,600 crore, including TBCB projects of about ₹13,000 crore and regulated return-based projects of about ₹34,600 crore.

Out of this, ₹22,000-crore worth Leh-Kaithal project is expected to be executed in five years, while the remaining projects are expected to be executed in three years. Further, the company is also expecting incremental opportunities worth ₹2.4-lakh-crore on account of new renewable based generation capacities in the coming years.

This strong project pipeline will result in better earnings for the company. The Power Grid’s transmission capex is expected to remain muted over the near-term, but it is likely to see some growth post FY25.

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In the bl.portfolio dated July 16, 2022, we recommended investors to accumulate the stock of Power Grid on account of reasonable valuation, strong dividend yield and assured earnings model.

Since then, the stock has gained about 10 per cent. Currently, the stock trades at a trailing P/E of around 10 times. As the previously mentioned factors are still in the company’s favour, we maintain the ‘Accumulate’ stance on the stock.