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Saturday, January 5, 2008

Stock Picks for 2008-Power Grid corp

Stock Picks for 2008 : Power Grid corp


There is one and only great pick for years to come and that is Power Grid crop.
Why ? :-
With India looking to broaden and upgrade its infrastructure, particularly in the sphere of power generation and transmission, the Power Grid Corporation is set
to play a pivotal role in this makeover being the country's apex corporation. Already, Power Grid supplies more than 46 per cent power generated in the country. It is next positioned to hold an even larger share as the nation augments its grid power. Any investment portfolio for 2008 cannot exclude this key player, which would
oversee projects under the planned investment of Rs 55,000 crore over the next five years for setting up a national power grid with inter-regional capacity of more
than 37,000 mw. Needless to say, there is immense growth ahead for the corporation, which implies proportionate returns appreciation for investors.
Power Grid has been a monopoly player ever since the government decided in 1992 to vest in one entity the authority to own, operate and consolidate all inter-state and inter-regional transmission. Being the singlelargest transmission company, it does not face any direct competition and its domain strength remains unmatched. When it came out with an IPO, it had around 45 projects in various stages of completion. Now, most of these projects are nearing completion and are likely to get commissioned in 2008. These completed projects would escalate its revenue and profit. Also, there are several projects in the pipeline, the combined cost of which is pegged at more than Rs 1,600 crore. These are likely to be completed in two years, which would further consolidate Power Grid's revenues. Power Grid has also
entered into a joint 26:74 joint venture with Reliance Energy for executing 300-km transmission line from Parbati to Koldam and from Koldam to Ludhiana. While the corporation's core business continues to grow, its other support pil-lars like the consultancy business and the telecommunication business, are also doing
quite well. In the area of consultancy, it facilitates implementation of governmentfunded power projects under schemes like the Accelerated Power Development
and Reform Programme (APDRP) and the Rajiv Gandhi Grameen Vidyutikaran Yogana (RGGVY). In H1FY07, the consultancy wing posted revenues of Rs 111.79
crore. On the telecom front, Power Grid owns and operates more than 19,000 km of fibre optic cable network, where it leases bandwidth to various telecom ompanies, including VSNL, BSNL, Tata Teleservices, Reliance Communications and others. Currently for H1FY08, the telecom segment has clocked revenues of around Rs 63.38crore. Growing at a five-year CAGR of over 12 per cent and 14 per cent in the topline and the bottomline, Power Grid is a steady performer. In H1FY08, it posted Rs 2,009 crore (Rs 1393.07 crore) revenues, while the profits stood at Rs 825 crore (Rs 397.31 crore) during the same period. We expect
the corporation to post a topline of more than Rs 4,000 crore and profit of around Rs 1,500 crore in FY08. At these estimates, Power Grid gives an EPS of Rs 3.56 ( equity Rs 4,208.8 crore), thereby generating a PE of just over 41x. Thus, considering the future growth prospects, with infrastructure play and a proxy power play, it surely seems a winner. Even at 41x, it has the potential to give good appreciation to scrip investors.

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