Stock Review: Power Grid Corporation (PGCIL)

The transmission business may see significant growth in order to meet the 11th Plan targets

Power Grid Corporation (PGCIL) witnessed a 22 per cent year-on-year (y-o-y) rise in revenues at `2,127 crore in the September quarter, backed by a four-fold jump in the commissioning of assets worth `3,932 crore.

Net profit surged 42 per cent to `651.4 crore, helped by increased traction in the consultancy business. The segment saw revenues and profit before tax (PBT) rise 56.5 per cent and 202 per cent to `79.4 crore and `43.55 crore, respectively. Also, PBT in the transmission business grew 63 per cent.

The company's transmission business provides good visibility, as it is expected to see substantial rise in the commissioning of assets in the next two years, courtesy bunching up of generation capacities (40 per cent of the total transmission investments). About 40,000 Mw is to be added in 2010-12, as just 22,000 Mw has been commissioned during 200710 of the targeted 78,000 Mw for the 11th Plan period.

The company is yet to spend 54 per cent (29,700 crore) of the total capex of 55,000 crore targeted for the 11th Plan period. It has further guided towards doubling of capex (1lakh crore) in the 12th Plan to meet the requirements of private generation projects worth 48,000 Mw and four-six new ultra mega power projects. It will also come up with a follow-on offer soon to fund 30 per cent of capex planned for 2007-12.

PGCIL's other two businesses – consultancy (extending services to more geographies) and telecom (using transmission towers in forest and remote areas as telecom towers) –have huge growth potential and can boost the return on equity. Though, they will continue to form a smaller portion to total revenues.