InstitutionalEquities

July26,2012

IndiaResearch

PowerGrid

RESULTUPDATE

Power Grid Corp of India: Q1FY13 Results: Healthy Growth in RevenuesDuetoHigherCapitalization

(PWGRIN,BUY;MktCap:US$9,132mn;CMP:Rs.111;TP:Rs.126;14%Upside) Broadbasedslowdownappearsmoreominous
More worryingly, the pervasive nature of IIP has continued with the seriesinternalsbeingsoberingandominous. Specifically,onathreemonthmovingaverage(3mma)basis,IPgrowth TherevenueofPowerGridCorporationofIndia(PGCIL)grew31%YoY(up10%QoQ)toRs.28.8bninQ1FY13with has been consistently slowing down. September print was low at anEBITDAofRs.24bn(up33.6%YoY)andEBITDAmarginroseto85.9%inQ1FY13vs.83.7%inQ1FY12,whileits 3.1%YoY from 5.6%YoY and down from 7.9% in March. Though it may reportedPATrose23%YoYtoRs.8.7bnQ1FY13. lookbetter Growth came below Market & OurExpectations: However, growth was below market and our expectations due to

Analyst:RupeshSankhe;+912261844315,rupesh.sankhe@karvy.com

provisionaltariffordershavebeenissuedbytheCERCallowingprovisionalbillingof8085%ofthetariffclaimed.Its adjustedtransmissionincomegrew10%QoQ,asincomeforQ4FY12includedRs.4.65bnonaccountofdeferredtax liability. Growth in sales for the quarter was largely powered by transmission income. Transmission income (96% of revenues) grew 29.3% YoY to Rs. 28.1 bn, telecom income grew by 26% on YoY to Rs. 570 mn on the back of strong orderbook,anditsconsultancyincomegrewby13%YoYtoRs.612mninQ1FY13. NetProfitbelowOurEstimate(Rs.11bn)up23%YoYtoRs.8.7bn:PGCILsreportednetprofitstoodatRs.8.7bn inQ1FY13belowourestimatesduetolowerbilling&higherinterestcostworthRs.2.3bn. PGCIL commissioned projects worth Rs. 41 bn in Q1FY13. Considering a sharp rise in execution, the Companys Management is confident of achieving capex target Rs 200 bn vs. our assumption of Rs. 186 bn in FY13. TheCompanyhasmaintained12thPlancapexofRs.1trillionoutofwhich70%ordershavebeenplaced. Comforting Receivables: Contrary to the earlier investors concerns on debtors, PGCIL reported a sharp decline in receivablesto84daysinFY12vs.142daysinFY11,whichshouldeaseworkingcapitalrequirementstosomeextent.As perthemanagementdiscussion,theoutstandingreceivablesabove60daysarejust8daysofbilling. FinancialSummary
Rs.mn NetSales OperatingCosts EBIDTA EBIDTAMargin(%) OtherIncome Interest Depreciation ProfitBeforeTax Tax TaxRate(%) AdjustedPAT ExtraordinaryIncome ReportedPAT
Source:Company,KarvyInstitutionalResearch

Q1FY12 22,025 3,583 18,442 83.7 1,432 4,446 5,790 9,638 2,586 26.8 7,053 (9) 7,062

Q4FY12 31,019 5,145 25,874 83.4 3,069 5,413 7,177 16,354 6,037 27.5 10,317 104 10,420

Q1FY13 28,882 4,236 24,646 85.3 920 6,461 7,565 11,540 2,836 24.6 8,704 (4) 8,701

QoQ(%) 7 18 5 192 70 19 5 29 53 16 17

YoY(%) 31.1 18.2 33.6 160 35.8 45.3 30.7 19.7 9.7 23.4 23.2

July26,2012

Outlook&Valuation
Strong Earnings Visibility Higher Capex to Boost Growth in Annuity Earnings:PGCILhascurrentlyoperating23,800MWtransmissionscapacity,and we expect that large capacity addition in generation in FY1215E, which could improve projects execution in FY1314E, when capitalization isseen at Rs. 132 165bn,asagainstRs.28.8bnandRs.75.5bninFY10andFY11,respectively.We expecttheregulatedassetbasetogrowtoRs.372bninFY17Eduetogeneration capacityadditionandsystemstrengthening. Lowrisk Business Model Core RoE at 17.518% till FY17E: From FY10 onwards,PGCILearnsanassuredposttaxRoEof15.5%ontheequityinvested in its capitalized transmission projects along with network availabilitylinked incentivesandearlycommissioningincentivesforprojects.WeexpectcoreRoE forPGCILtoremainat17.518%tillFY17E.WeexpectEPSCAGRgrowthwillbe 20.4%duringFY1214E. AttheCMP,thescriptradesat2.0xFY13Eand1.8xFY14EP/BV,respectivelyand 13xP/EofFY13Eand11xFY14E,whichwebelieveisata20%and25%discount toitshistoricalaverageP/Bmultiple.WeuseDCFmethodologytovaluePGCIL, given the stable cash profile of its regulated business. We reiterate our BUY recommendationonthestockwithupwardlyrevisedDCFbasedtargetpriceof Rs.126persharefromRs.118pershareearlier.

July26,2012

InstitutionalEquitiesTeam
RangachariMuralikrishnan ShridharIyer K.AnantRao UdayRaval INSTITUTIONALRESEARCH Analysts DwaipayanPoddar HatimBroachwala,CFA JagadishwarPasunoori MadhaviArora ManojKumarManish MarutiKadam MitulShah NishithSanghvi NaveenTrivedi PallavAgarwal PareshJain ParikshitKandpal RahulSharma RahulSingh RajeshKumarRavi RupeshSankhe SameerPardikar VinayNair INSTITUTIONALSALES DineshBajaj DipeshJain R.Sriram ShabbirDahodwala TejashGandhi HeadInstitutionalEquities / Research/Strategy HeadInstitutionalSales HeadSalesTrading&Derivatives KarvyInc.USA Industry/Sector ChiefTechnicalStrategist Banking MidCap Economy/Strategy DerivativesResearch Automobiles/Metals&Mining Automobiles Pharmaceuticals FMCG Metals&Mining BFSI Infra/RealEstate/Strategy Pharmaceuticals MidCap Cement&Logistics Power/CapitalGoods Telecom,MediaandOil&Gas Oil&Gas Sales Sales Sales Sales(USA) Sales +912261844301 +912261844302 +912261844303 +12122674334 DeskPhone +912261844372 +912261844329 +914044857912 +912261844320 +912261844327 +912261844326 +912261844312 +912261844325 +912261844316 +912261844317 +912261844324 +912261844311 +912261844310 +914044857912 +912261844313 +912261844315 +912261844323 +912261844319 +912261844341 +912261844342 +912261844340 +12122674334 +912261844345 mitul.shah@karvy.com nishith.s@karvy.com naveen.trivedi@karvy.com agarwal.pallav@karvy.com paresh.jain@karvy.com parikshit.kandpal@karvy.com rahul.sharma@karvy.com rahulsingh@karvy.com rajesh.ravi@karvy.com rupesh.sankhe@karvy.com sameer.pardikar@karvy.com vinaynair@karvy.com dinesh.bajaj@karvy.com dipesh.jain@karvy.com sriram.rangarajan@karvy.com shabbir@karvy.com tejash.gandhi@karvy.com muralikrishnan@karvy.com shridhar.iyer@karvy.com k.anantrao@karvy.com udayr@karvy.com EmailID dwaipayan.poddar@karvy.com hatim.broachwala@karvy.com jagadishwar.p@karvy.com madhavi.arora@karvy.com manojkumar.m@karvy.com

INSTITUTIONALSALESTRADING&DEALING BhaveshGandhi PrashantOza ParagShah SriramJagdish PRODUCTION AsimKumarMohapatra VishalRandive VijayalaxmiMoolya InstitutionalDealer InstitutionalDealer SalesTrader SalesTrader Editor Database Production +912261844368/69 +912261844370/71 +912261844364/65 +912261844366/67 +912261844318 +912261844321 +912261844328 bhavesh.gandhi@karvy.com prashant.oza@karvy.com parag.shah@karvy.com

sriram.jagdish@karvy.com
asim.mohapatra@karvy.com vishal.randive@karvy.com vijayalaxmi.m@karvy.com

July26,2012

StockRatings Buy Hold Sell
Forfurtherenquiriespleasecontact:

: : :

AbsoluteReturns >15% 515% <5%

research@karvy.com Tel: DisclosuresAppendix

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Analystcertification The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this researchreport. Disclaimer TheinformationandviewspresentedinthisreportarepreparedbyKarvyStockBrokingLimited.Theinformationcontained hereinisbasedonouranalysisanduponsourcesthatweconsiderreliable.We,however,donotvouchfortheaccuracyorthe completenessthereof.Thismaterialisforpersonalinformationandwearenotresponsibleforanylossincurredbasedupon it.Theinvestmentsdiscussedorrecommendedinthisreportmaynotbesuitableforallinvestors.Investorsmustmaketheir own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Stock Broking nor any person connected with any associate companies of Karvy acceptsanyliabilityarisingfromtheuseofthisinformationandviewsmentionedinthisdocument. Theauthor,directorsandotheremployeesofKarvyanditsaffiliatesmayholdlongorshortpositionsintheabovementioned companiesfromtimetotime.EveryemployeeofKarvyanditsassociatecompaniesarerequiredtodisclosetheirindividual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities tillsuch a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only throughKarvyStockBrokingLtd.Thisreportisintendedforarestrictedaudienceandwearenotsolicitinganyactionbased onit.Neithertheinformationnoranyopinionexpressedhereinconstitutesanofferoraninvitationtomakeanoffer,tobuy orsellanysecurities,oranyoptions,futuresnorotherderivativesrelatedtosuchsecurities.

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