Power Grid’s (PGCIL) Q3FY11 results were in line with our expectations with revenues and adjusted PAT each growing by 22% to Rs20bn and Rs6bn respectively. Capitalization increased marginally during the quarter to Rs68bn from ~Rs51bn in H1 FY11. We believe PGCIL offers the best bet as its capex and capitalization continues to remain on track. Re-iterate BUY with a target price of Rs115/share.

Healthy 22% growth in revenues

During the quarter the company commissioned projects worth Rs17.4bn thus taking its 9M FY11 capitalization to Rs68.3bn against Rs30.9bn in 9M FY10. This translated into 22% y-o-y growth in revenues to Rs20.4bn. PGCIL enhanced its transmission network by ~2,435ckt km during the quarter to 81,456ckt km.

Targets Rs330bn capitalization during XIth plan

PGCIL, shall be able to meet its XIth plan capex target of Rs550bn – of which it has already spent Rs254bn in the first three years. It plans to spend another Rs119bn and Rs177bn during FY11 and FY12 respectively. PGCIL targets to commission assets worth Rs230bn by FY11 and another Rs110bn by FY12.

Open bids for leasing towers in March 2011

PGCIL plans to leverage its infrastructure to provide telecommunication services by co-locating wireless antennas. It has already floated tenders inviting bids from various players for lease out its towers. It is undertaking this in J&K, Himachal Pradesh, Haryana and Punjab on a pilot basis. Bids are expected to open in March 2011.

VALUATIONS AND RECOMMENDATION

We believe PGCIL offers a good bet to play the huge investments in the power sector. Since it operates under the regulatory framework it offers safe and steady returns. We estimate the company should be able to meet its XIth plan capex target, hence placing it better than its peers in the generation space. PGCIL continues to remain one of our favorite bets in the sector, re-iterate BUY with a target price of Rs115/share.