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Power Grid – capex delays – Muted Returns – Goldman

September 14, 2009

Power Grid Corporation of India Ltd – PGCIL is the main beneficiary of India’s Power generation capacity growth. Goldman’s negative view on PGCIL comes mainly from the back of – few options PGCIL has to improve its ROE beyond 13%; potential delays in generation capacity impacting its planned capex. Expect PGCIL’s planned capex to fall 25% short of its target of US$12bn for the 11th Five-Year Plan; insufficient internal accruals, which could lead to equity dilution or pushing of capex to 12th Five-Year Plan.

The government has already stated that about 10,000 MW capacities could be delayed. Goldman expects 20% below Bloomberg consensus expectations on FY11E earnings and expect consensus to lower their estimates once it becomes clear that PGCIL’s capitalization will decline.

According to Goldman, PGCIL’s fully diluted EPS will be Rs 4.75 for FY10 and Rs 5.20 for FY11.

Out Recommendation:
Fresh exposure can be avoided but don’t SELL if you have bought in IPO. PGCIL is far better than Reliance or Adani Power but due to it being a PSU their are no Bull operators in the counter.

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