Power Grid: Of steady earnings, asset monetisation

Attractive dividend pay-out and low valuations are other triggers

Transmission major Power Grid (PGCIL) reported encouraging results in the June quarter of financial year 2021-22 (Q1FY22) coupled with a strategy of asset monetisation. Consolidated revenues were ~10,392 crore, a 6 per cent year-on-year (YOY) growth over ~9,817 crore in Q1FY21 and a fall of 4 per cent quarter-onquarter (QOQ) versus revenues of ~10,816 crore in Q4FY21.

Profit after tax (PAT) grew 193 per cent YOY to ~5,998 crore, versus ~2,048 crore (without exceptional items) last year, and up 70 per cent QOQ versus ~3,526 crore in Q4. Reported PAT was ~3,341 crore (including extraordinary items), versus ~2,935 crore last year.

Ebitda (earnings before interest, taxes, depreciation, and amortisation) was ~9,228 crore in Q1, a rise of 5 per cent YOY and a drop of 3 per cent QOQ. Debt outstanding declined about ~5,000 crore to ~1.4 trillion. However, financing costs at ~2,215 crore rose in Q1 versus ~1,881 crore in Q4. Receivables declined to ~7,619 crore from ~8,580 crore last year, while rising substantially from ~3,600 crore in Q4. PGCIL has ongoing work-in-hand of ~35,100 crore with a FY22 capital expenditure plan of ~7,500 crore.

While the bulk of revenues (~9,991 crore in Q1FY22) comes from the transmission business, the company also has a presence in telecom, which contributed ~97 crore to the top line and in consultancy (~129 crore).

It has started hiving off assets into the investment trust PGINVIT, which is available on the BSE. It intends to gradually transfer most, if not all, of its SPVS (special purpose vehicles) to the trust. This would include 22 TBCB (tariff-based competitive bid) projects.

It has already transferred 74 per cent equity in five operational projects. The INVIT launch raised around ~4,993 crore in fresh issuances alongside an offer for sale of ~2,742 crore worth of units. The profit on sale of the above investments (net of related expenses) is ~3,014 crore, which is disclosed under exceptional items.

In lieu of the shareholding transferred, 410.65 million units were allotted by PGINVIT to the company. It has retained 136.50 million units –15 per cent of the total units of PGINVIT outstanding on post-issue basis. The other 274.15 million units were sold in the OFS.

PGCIL is also increasing its investment in Energy Efficiency Services (EESL), a joint venture of Power Grid, NTPC, PFC, and REC. The board has cleared fresh equity infusion of up to ~425 crore.

PGCIL could find opportunities in distribution reform schemes. It estimates an incremental ~2 trillion of investment in discoms, which are upgrading distribution networks and introducing smart metering. It will engage with discoms to provide technical solutions and investment support. It is also guiding for ~10,800 crore of opportunities in statelevel transmission schemes, with total investments of around ~40,000 crore.

If there’s delays in such schemes, the company could distribute the cash received from the INVIT as dividends. Some analysts see a potential dividend yield of 7-8 per cent, backed by the asset monetisation. This is in addition to steady, but not spectacular, earnings growth. The stock has traded in the ~175-185 band in the last 20 sessions and it has relatively low valuations.