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Buy Power Grid: Indiabulls Securities

Posted on: July 8th, 2009 and is filed under Brokerage Recommendations.

Indiabulls Securities Research has maintained its buy rating on Power Grid Corporation of India in its report dated July 6, 2009.

“Power Grid Corporation of India Ltd. (PGCIL) reported FY09 results way above our expectations with a 42.0% yoy growth in net sales. As we continue to believe in the Company’s strong fundamentals, our fair-value estimate remained almost the same at Rs 123 and thus, we maintain our Buy rating. In FY08, the Company had announced plans to add 60,000 circuit kilometres of transmission network by 2012. So far, it has successfully added 7,207 circuit kilometres. We believe that this expansion in its capacity will boost the transmission revenues of the Company, which is expected to increase at a CAGR of 20-25% during FY09-FY12.”

“At the current market price (CMP) of Rs 103.6, PowerGrid’s stock is trading at a P/B multiple of 2.98x for a book value of Rs 35 at the end of FY09. By comparing the expected returns of PGCIL with the current yield of a 10-year AAA bond, i.e. 9.13%, we have arrived at a target P/B multiple of 3.55x for the Company’s stock. We have assumed a conservative RoE cap of 13.5% from FY15 onwards. This gives a fair value of Rs 123 for PGCIL’s stock, indicating a 19% upside potential from the CMP. Thus, we reiterate our Buy rating,” says Indiabulls Securities’ research report.

source: Moneycontrol

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