Analysts' Picks: Power Grid Corp
CITIGROUP has maintained its ‘sell’ rating on Power Grid Corp (PGCIL) with a target price of Rs 69.
By ET Bureau |
CITIGROUP maintains ���sell��� rating on Power Grid Corp
RESEARCH: CITIGROUP
RATING: SELL
CMP: Rs 74
CITIGROUP has maintained its ���sell��� rating on Power Grid Corp (PGCIL) with a target price of Rs 69. PGCIL���s shares have outperformed the Sensex, post its IPO. Despite correcting more than 55% from its peak, it is not in the value zone yet. They are trading on par with NTPC, which appears unjustified . The key upside risks are: 1) Favourable CERC regulations for FY10-14 E; 2) Faster-than-expected project execution; and 3) Higher non-core business profits. PGCIL has the potential to generate 14-17 % returns on its regulatory equity base, compared with NTPC���s 14-22 %. NTPC under-reports its profit /net worth. PGCIL matches depreciation under the tariff with reported depreciation , whereas NTPC���s depreciation under the Company Law is higher than under the tariff. PGCIL���s target price of Rs 69 is set at 1.8x FY10E P/BV from 2.2x earlier ��� a 10% discount to the target P/BV multiple for NTPC. PGCIL���s H1 FY09 reported PAT, at Rs 700 crore, was down 15% y-o-y . But this is largely due to forex fluctuations and a pass-through in tariffs.
RESEARCH: CITIGROUP
RATING: SELL
CMP: Rs 74
CITIGROUP has maintained its ���sell��� rating on Power Grid Corp (PGCIL) with a target price of Rs 69. PGCIL���s shares have outperformed the Sensex, post its IPO. Despite correcting more than 55% from its peak, it is not in the value zone yet. They are trading on par with NTPC, which appears unjustified . The key upside risks are: 1) Favourable CERC regulations for FY10-14 E; 2) Faster-than-expected project execution; and 3) Higher non-core business profits. PGCIL has the potential to generate 14-17 % returns on its regulatory equity base, compared with NTPC���s 14-22 %. NTPC under-reports its profit /net worth. PGCIL matches depreciation under the tariff with reported depreciation , whereas NTPC���s depreciation under the Company Law is higher than under the tariff. PGCIL���s target price of Rs 69 is set at 1.8x FY10E P/BV from 2.2x earlier ��� a 10% discount to the target P/BV multiple for NTPC. PGCIL���s H1 FY09 reported PAT, at Rs 700 crore, was down 15% y-o-y . But this is largely due to forex fluctuations and a pass-through in tariffs.
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