Rachel Hartman
Updated on: October 13, 2024 12:05 pm GMT
In a significant boost for the Power Grid Corporation of India Ltd, the company has experienced a surge in its transmission sector projects, which are more than doubling over the past year. This increase in project activity has offered a potential upward trajectory for the company’s financial outlook, though tangible benefits may take several years to materialize.
Surge in Transmission Projects
The demand for electricity in India has been steadily rising, driven by a growing population and economic expansion. Consequently, Power Grid Corp., which controls roughly 45% of the nation’s transmission network, is witnessing over ₹1.1 trillion in transmission projects currently underway, up from less than ₹50,000 crore recorded at the end of June 2023.
- Order Growth: The company has recently received letters of intent for two major projects, contributing to a flourishing order book.
- Renewable Energy Push: Most of these projects are fueled by the initiation of large renewable energy schemes, particularly in regions lacking previous connections to the transmission network.
Analysts from JM Financial Institutional Securities note, “The long-awaited transmission capital expenditure (capex) is now showing a gradual upturn, underpinned by renewables and growing generation capacity including thermal.” The company enjoys a robust market share, securing about 65–70% of new orders in the transmission sector.
Increased Capex Targets
To effectively manage this influx of projects, Power Grid has revised its capex target for the fiscal year 2025 from ₹15,000 crore to ₹18,000 crore. This marks a substantial increase compared to the average annual capex of just ₹10,000 crore over the last three years.
- Future Projects: Management reported that approximately ₹1 trillion worth of inter-state, intra-state, cross-border, and international transmission projects are lined up with 70-80% anticipated to be awarded in FY25.
- Financial Health: Despite a significant amount of debt at over ₹1.2 trillion, the company’s high EBITDA (earnings before interest, tax, depreciation, and amortization) margin, which stands at nearly 87%, helps in maintaining a manageable net debt-to-EBITDA ratio of 2.9x.
Performance Metrics and Investor Outlook
Due to the capital-intensive nature of its operations, Power Grid’s stock has reflected a more mixed near-term financial performance. During the first quarter of FY25, the company reported a marginal EBITDA decline of 0.8% Year-On-Year (YoY), following a growth of about 1% in FY24. Analysts predict a subdued EBITDA growth of just 4-5% compounded annually from FY24 to FY26.
- Stock Performance: Investors are optimistic, as reflected by the stock’s impressive 64% appreciation over the past year, driven by bolstered sector outlook and a growing order book. The company’s issue of bonus shares last September also acted as a positive catalyst.
Market Response and Technical Analysis
As of September 20, Power Grid shares were trading at ₹341.15, marking an increase of 1.87% from the previous close. Broader market indices like Nifty and Sensex also registered gains, suggesting a generally positive sentiment in the market.
- Key Technical Levels:
– Resistance: ₹344.82, ₹347.98, ₹353.02
– Support: ₹336.62, ₹331.58, ₹328.42
The technical analysis indicates that the stock is trading above multiple short-term and long-term moving averages, reflecting a bullish trend.
Investment Landscape
Power Grid’s mix of projects and strategies, including its foray into telecommunications through optical fiber networks, represents a diversified approach to its operations. While telecommunication currently accounts for a modest 2% of overall revenue, the company’s focus remains on its core transmission business.
- Financial Ratios:
– Return on Equity (ROE): 18.30%
– Price-to-Earnings (P/E) Ratio: 19.85
With promoter holdings at 51.34% and a recent uptick in mutual fund investments, investor confidence appears cautiously optimistic.
Looking Ahead
While immediate gains from the new projects are not expected until at least FY26, analysts anticipate a long-term positive impact on Power Grid’s growth trajectory, largely driven by significant investments in renewable energy.
As the company continues to secure new orders and ramp up its capital expenditures, stakeholders and investors will closely monitor project completion timelines as key indicators for future performance. Today’s market movements and overall project activity suggest that Power Grid Corp. is well-positioned for growth, even amidst challenges in the larger economic landscape.
In conclusion, Power Grid’s success will rely not just on how well it completes its projects, but also on how the economy is doing. This will influence what investors think and how much energy people in India need.
