Power Grid Corp stock rallies 5% on healthy outlook; higher capex guidance

Power Grid Corporation of India shares rallied 5 per cent to Rs 332 on the BSE in Monday’s intra-day trade amid heavy volumes on healthy outlook. The company has raised its FY27 capex and capitalization targets to Rs 40,000 crore, up from an earlier target of Rs 25,000 crore, and its seven-year capex guidance to Rs 3 trillion.

 

The stock price of the state-owned power transmission company had hit a record high of Rs 366.20 on September 25, 2024. At 02:30 pm; Power Grid Corporation was top gainer among the BSE Sensex and Nifty 50 shares, quoting 4.5 per cent higher at Rs 330.60. In comparison, the benchmark indices were trading on a flat note. The average trading volumes at the counter jumped nearly 2-fold with a combined 17 million shares changing hands on the NSE and BSE. 

 

Meanwhile, in the second quarter of the financial year 2024-25 (Q2FY25), Power Grid Corporation reported flat year-on-year (YoY) revenue at Rs 11,300 crore, with a slight Earnings before interest, tax, depreciation, and amortization (EBITDA) decline of 2 per cent YoY to Rs 9,700 crore due to a 16 per cent YoY rise in expenses, which compressed EBITDA margin to 86 per cent from 88 per cent last year.

 

Analysts at Elara Capital revised Power Grid Corporation to 'Buy' from Accumulate given the recent correction in the stock price, with target price unchanged at Rs 384, valuing regulated projects at 3.0x FY27E P/B, consultancy projects at 10x (unchanged) FY27E P/E and Tariff based competitive bidding (TBCB) projects at 3.0x FY27E P/B.

 

The company is a play on growing investment in the power sector. The company has set an ambitious capex target of Rs 3 trillion until FY32 and raised capex and capitalization target for FY27. The brokerage firm believes Power Grid Corporation will hold a huge market share in the upcoming TBCB projects.

 

Meanwhile, Motilal Oswal Financial Services derives a target price of Rs 426 for Power Grid Corporation based on Dec’26E EBITDA and an EV/EBITDA multiple of 11x, which the brokerage firm thinks is reasonable, though at the higher end of the historical range.

 

In the analyst meet, Power Grid Corporation’s management highlighted a total capex potential of Rs 6.6 trillion in Inter-State Transmission Systems, where Power Grid Corporation holds a leading 50-60 per cent market share. Management also highlighted six upcoming High-Voltage Direct Current (HVDC) projects and three cross-border linkage projects (India-Bangladesh, India-Myanmar, and India-Sri Lanka), in which Power Grid Corporation remains well placed to compete and execute. As such, the brokerage firm believes capex and capitalization should continue on an upward trajectory in the coming years.

 

Some of the major TBCB projects that will be executed during the coming years include Bikaner complex Part A, Koppal - Gadag, Khavda Phase 3 Part B, Bikaner complex Part D, Rajasthan Phase 3 Part D Phase 1. In addition to these, the major RTM project that will be executed include, developing Green Energy Corridor for Ladakh – Pang to Kaithal HVDC and at Pang and Kaithal VSC stations and associated AC transmission line at Pang and Leh. Apart from this we are also actively pursuing opportunities in the intra-state transmission sector, Power Grid Corporation said in its FY24 annual report.

 

Going forward, the company expects higher capex, following several successful TBCB rounds during the recent times, along with the projects allocated under the regulated tariff mechanism (RTM).