Deutsche Bank raises Power Grid's target price

MUMBAI: Deutsche Bank has reiterated its ‘buy’ rating on Power Grid Corporation (PGCIL) and increased the target price after the company announced quarterly results. It sees certainty in PGCIL’s growth and continued benign regulations supporting favourable returns.

“PGCIL’s results surprised for a third quarter in a row. Capex was 11 percent ahead of our estimates, but more importantly, capitalization was 35 percent ahead of estimates at Rs 14,100 crore (up 97 percent YoY), which continues to drive robust profit growth trajectory (up 21 percent YoY to INR 32.5bn),” the report said.

Despite concerns on new capex growth, PGCIL is geared to maintain its earnings CAGR of 21 percent and asset CAGR of 24 percent over the next three years, the report noted. The new transmission pricing formulae, favourable regulatory policies are set to reaffirm PGCIL’s strong bargaining power, it added.

“We value the stock on price-to-book target multiples, using the Gordon Growth Model assuming 8 percent regulated BV growth versus 24 percent in our model for FY11-17E. We have revised our 12-month SOTP-based valuation target from Rs 120 to Rs 125,” the report said.

The stock was at Rs 105.65, up 1.59 percent, on the BSE. It has touched a high of Rs 107.20 and a low of Rs 104.20 so far.

The recent weakness in the stock looks to be overdone and the company’s earnings remain largely insulated and the current levels provide a buying opportunity, the Deutsche Bank note added.