Importantly Power Grid completed 2,934 circuit km of transmission lines and 7,235 MVA of substations in Q4, versus 5,965 circuit km in the first nine months of FY18. Which is encouraging, feel analysts. Asset capitalisation of Rs 78 billion during Q4 and Rs 274 billion in FY18 were in line with expectations. Analysts at Kotak Institutional Equities say outstanding approvals stand at Rs 820 billion, lending visibility to asset capitalisation for another three years. Hence, the outlook is strong till FY21.
Other factors add to analysts’ confidence. From the current cost plus 15.5 per cent return on equity (RoE) regime, Power Grid is winning incremental orders under tariff-based competitive bids (TBCB), which will lessen regulatory risk, as returns for such projects will not be reset every five years, say analysts at ICICI Securities. Motilal Oswal Securities, too, remains confident of strong double-digit IRR (internal rate of return) in TBCB projects. The consultancy and telecom businesses are also expected to grow 15-20 per cent, going ahead.
With Rs 1 trillion of orders pending execution, analysts estimate earnings to grow 12 per cent annually over FY18-22. The defensive nature of the company’s business, inexpensive valuations and rising dividend yields should support the stock, says an analyst.