Power Grid Corp. of India Ltd's shares were dull after the company released its September quarter results. The stock, which gained 2% on Tuesday, closed marginally lower on Wednesday. The 18% revenue growth and 21% expansion in both operating profit and net profit, are in line with Street estimates.
However, PowerGrid lagged in project commissioning. During July-September, it commissioned projects worth ₹5,100 crore, which is only 8.5% higher than a year ago. After the first quarter, the company indicated that project commissioning in the second quarter would be substantially higher as it began capitalizing a large project worth ₹7,500 crore. But as it turns out, that project was commissioned only this month.
The delay weighed on GFA (gross fixed asset) expansion. According to Nomura, including the exchange rate variation, the GFA accretion is flat in the first half of the current fiscal year. "GFA accretion is arguably disappointing as its ₹75 billion asset began commercial operations only from November onwards," added Nomura. Growth in capitalized assets is important as it improves earnings visibility. Once operational, PowerGrid will be allowed to make a fixed return on the asset.
Of course, with the project now commissioned, the capitalized assets stand higher. The asset is expected to contribute to PowerGrid's earnings from the current quarter itself. While that should support revenue momentum, continuation of positive momentum in asset additions is crucial for the stock. That will help ensure the rosy double-digit earnings growth estimates are maintained by analysts.
The capitalized assets add up to ₹17,100 crore so far this fiscal year. For the full year, analysts expect PowerGrid to commission assets in the range of ₹22,000-26,000 crore. If the company commissions ₹25,000 crore of assets in the current and next fiscal years, then the generated profits would be sufficient for capital expenditure needs, helping it avoid equity dilution, Antique Stock Broking Ltd said in a note.
That sounds interesting, but it should be noted that project capitalization was not particularly good in the first half of the current fiscal year. According to IIFL Institutional Equities, PowerGrid's project completion is "lumpy and back-ended". While that makes the second half of the year crucial, proof that the company is on track to achieve the capitalization estimates will help it revive the stock, which is down 8% in the last one year.
In arrangement with HT Syndication | MINT
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
