Street positive on long-term capex plans of Power Grid Corporation

The Q1FY24 saw adjusted net profit decline 5 per cent YoY and 17 per cent QoQ to Rs 3,600 crore

Despite enduring a weak first quarter of the 2023-24 financial year (Q1FY24), Power Grid Corporation (PGCIL) has laid out an ambitious capex plan going forward. It is looking to invest around Rs 1.8 trillion on an existing asset base of Rs 2.7 trillion to aim at keeping over 50 per cent market share in the transmission market. This includes opportunities from the Rs 2.4 trillion green energy corridor.  

The Q1FY24 saw adjusted net profit decline 5 per cent year-on-year (YoY) and 17 per cent quarter-on-quarter (QoQ) to Rs 3,600 crore. Operating profit was at Rs 9,337 crore, down 12.6 per cent YoY.

This was due to telecom sales of Rs 2,100 crore, (-10 per cent YoY), lower interest accrual on differential tariffs at Rs  62 crore (down 56 per cent YoY) and lower consultancy fees of Rs 130 crore (down 33 per cent YoY).

Therefore, net revenues adjusted for regulatory deferral declined to Rs 10,702 crore, (down 2.6 per cent YoY and down 12.5 per cent QoQ).

While the gross block stands at Rs  2.7 trillion, operationally, the capitalisation of assets continued to be weak at Rs 1,620 crore (down 27 per cent QoQ) and capex was low at Rs 1,510 crore (down 60 per cent QoQ).

PGCIL has projects of Rs 48,700 crore in hand, comprising TBCB (tariff based competitive bidding) projects of Rs 12,800 crore and regulated return projects of Rs 35,900 crore.

Out of the TBCB projects, Rs 22,000 crore is towards a Leh-Ladakh project (5-year execution), whereas the balance is likely to be executed over the next three years.

Standalone Capital Work In Progress stood at Rs 8,400 crore, with another Rs 6,300 crore under TBCB. PGCIL is targeting a capex of Rs 8,800 crore (including Rs 3,800 crore from TBCB projects) and capitalisation of Rs 11,000 crore in FY2024. 

Management expects capex to rise to Rs 20,000 crore-Rs 25000 crore by FY26.

Management estimated total outlay of Rs 1.9 trillion until FY 2032, including Rs 1.7 trillion for the transmission business and Rs 17,000 crore for the other businesses. The Rs 1.7 trillion transmission outlay includes Rs 1.16 trillion for the inter-state transmission network, Rs 37,000 crore for the intra-state transmission network and the balance for cross-border, international projects.

The Rs 17,000 crore of outlay for other businesses includes Rs 15,000 crore for smart metering infrastructure. Interest from subsidiaries and JVs improved to Rs 340 crore (up 34 per cent YoY and up 10 per cent QoQ).  

Equity investments in operational TBCB projects are Rs 3,540 crore in Q1FY24 (almost flat QoQ), whereas equity investment in under-construction TBCB projects stood at Rs 350 crore (up 10 per cent QoQ). 

The incentive stood at Rs 132 crore (down 11 per cent yoy, and down 3 per cent QoQ) on a consolidated basis.

Trade receivables increased significantly to Rs 7,100 crore, as of June 2023, from Rs 4,800 crore, as of March 2023. 

Of the total dues, Rs 4,900 crore are due for over 45 days. Management referred to an ongoing dispute with the Government of Tamil Nadu, which is under deliberation at CERC/APTEL—this has led to an increase in receivables. Other major dues are from J&K, Telangana, and UP.

Surcharge stood at Rs 51 crore (versus Rs 97 crore in QF1Y23 and Rs 36 crore in 4QFY23. Management guidance assumes capex of Rs 8,800 crore for FY2024 and capitalisation of Rs 11,000 crore-Rs 11,000 crore. The transmission project for Leh-Ladakh (Rs 22,000 crore) awarded in Q4FY22 will commence construction only in FY2025. 

Completion could take five years – until FY29. Among overseas opportunities, there’s a $250 million project in Kenya with 40 per cent stake of PGCIL. The company is also exploring a possible project in Tanzania for $300 million.

Assuming capex comes through as guided, this would push market share to around 50 per cent. The stock is a steady dividend payer with stable earnings. Some analysts have maintained buy recommendations despite the poor results.