Buy This Large Cap Maharatna Stock, Shares Can Surge 17%, 50% Dividend Declared: Sharekhan

Sharekhan maintains the "Buy" call to Power Grid Corporation Of India Limited with a target price of Rs 265 per share. Investors buying the stock at the current price are likely to get decent returns on investments up to 17%, considering the given target price. Power Grid Corporation of India is a Maharatna company - Central Public Sector Enterprise (CPSE). It is a large-cap Maharatna company with a market valuation of Rs 1,59.040 Crore.

Dividend

The Board of directors of the company in its meeting held on Saturday, 05 November, approved the payment of an interim dividend of Rs 5 per equity share of Rs 10 each i.e.  50% of the paid-up equity share capital for the financial year 2022-23. The Interim Dividend shall be paid to the Members on 30th November 2022, according to the Board of Directors of the company.

Stock Outlook & Returns

The shares of the Power Grid Corporation of India last traded at Rs 228 per share, 0.82% up compared to its previous close. The stock recorded its 52-week high level at Rs 248.35 on 10 May 2022, whereas its 52-week low was recorded on 12 November 2021 at Rs 180.30. 

The stock in a month surged 8,88%, whereas, in 3 months 1.95%. In a year, the stock has given 23.21% positive returns. In 3 years, it has given 56.54% positive returns on investments. In 5 years, it has given 46.4% positive returns on investments. 

 

Steady earnings growth; a play on healthy dividend yield

Power Grid Corporation of India Limited's (Power Grid's) standalone Q2FY23 PAT increased by 9.4% y-o-y to Rs. 3,651 crore (in-line with our estimate of Rs. 3,626 crore) as muted asset capitalization of just Rs. 365 crore (versus Rs. 4699 crore in Q2FY22) and lower surcharge income (Rs. 15 crore in Q2FY23 versus Rs. 89 crore in Q2FY22) was offset by a sharply lower effective income tax rate of 9.4% (versus assumption of 22%). Dividend/interest income from subsidiaries/JVs stood at Rs. 118 crore (versus Rs. 142 crore in Q2FY22)/Rs. 270 crore (versus Rs. 204 crore in Q2FY22) and interest on differential tariffs at Rs. 150 crore versus negative Rs. 1 crore in Q2FY22. 

Key positives & Key negatives

According to the brokerage, the key positives are: Upped asset capital guidance to Rs. 13000 crore versus earlier guidance of Rs. 11,000 crore.  OCF/FCF increased sharply by 37%/52% y-o-y to Rs. 12,526 crore/Rs. 11,611 crore in H1FY23. Declared interim dividend of Rs. 5/share, which implies 2% dividend yield on CMP. 

According to the brokerage, the key negatives are: Consolidated asset capitalisation was muted at Rs. 3,133 crore in Q2FY23 versus Rs. 13,275 crore in Q2FY22. Outstanding receivables increased to Rs. 6,777 crore in Q2FY23 versus Rs. 5,856 crore in Q1FY23.

Valuation - Maintain Buy on Power Grid with an unchanged PT of Rs. 265

Power Grid has a robust project pipeline worth Rs. 45,700 crore and has capitalised ~Rs. 20,695 crore in FY22, which provides earnings visibility for 2-3 years. "We thus expect an 11% CAGR in PAT over FY2022-FY2025E along with RoE of ~18.8% in FY25E. We maintain a Buy on Power Grid with an unchanged PT of Rs. 265, as valuation of 1.7x/1.5x FY24E P/BV seems attractive considering decent growth outlook, healthy RoE and dividend yield of ~6-7%. Further, monetisation of transmission assets could help improve dividend payout given a low FY23 capex of Rs. 8,800 crore," the brokerage has said. 

According to the brokerage, the key risks to the buy call would be Slower-than-expected capitalisation of projects and 2) Inability to win new projects under tariff-based competitive bidding route. 

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.