*Sharekhan Stock Idea- 3R Recommendation*
*Power Grid Corporation of India Limited*
*Higher capitalisation boosts Q4; asset monetization to continue*
*Rating: Buy*
(CMP: 233, Price Target: 290)
*Company Description*
About company Power Grid is into the power transmission business with the responsibility for planning, implementation, operation, and maintenance of inter-state transmission system and operation of the National and Regional Load Dispatch Centres. The company’s segments include transmission, telecom, and consultancy. The transmission segment includes extra-high voltage/high voltage (EHV/HV) networks and grid management.
*Key Investment Arguments*
• Q4FY21 Standalone PAT grew by 10.5% y-o-y to Rs. 3,324 crore (13.4% above our estimate) led by asset capitalisation of Rs. 6,983 crore, an 8.2% y-o-y rise in other income a 24% y-o-y fall in interest costs.
• FY21 asset capitalisation stood at Rs. 21,467 crore, surpassing guidance; the management guided for capitalisation of Rs. 17,000 crore for FY2022E. Majority of FY2022 capitalisation is back-ended and the company has work-in-hand worth Rs. 41,100 crore; thus, we expect earnings growth momentum to sustain (expect 12% PAT CAGR over FY21-FY23E).
• Company has successfully monetized 5 TBCB assets through InvIT and target to further monetise transmission assets worth Rs. 5,000 crore in 12-18 months. Lower capex guidance of Rs. 7,500 crore for FY22 provides room for higher dividend. Board recommended a bonus issue of 3:1.
• We maintain a Buy on stock with a revised PT of Rs. 290 (valued at 1.7x FY23E book value), given earnings visibility, attractive valuation of 1.4x its FY23E P/BV (19% discount to historical P/BV), and healthy dividend yield of 5-6%.
*Power Grid Corporation of India Limited*
*Higher capitalisation boosts Q4; asset monetization to continue*
*Rating: Buy*
(CMP: 233, Price Target: 290)
*Company Description*
About company Power Grid is into the power transmission business with the responsibility for planning, implementation, operation, and maintenance of inter-state transmission system and operation of the National and Regional Load Dispatch Centres. The company’s segments include transmission, telecom, and consultancy. The transmission segment includes extra-high voltage/high voltage (EHV/HV) networks and grid management.
*Key Investment Arguments*
• Q4FY21 Standalone PAT grew by 10.5% y-o-y to Rs. 3,324 crore (13.4% above our estimate) led by asset capitalisation of Rs. 6,983 crore, an 8.2% y-o-y rise in other income a 24% y-o-y fall in interest costs.
• FY21 asset capitalisation stood at Rs. 21,467 crore, surpassing guidance; the management guided for capitalisation of Rs. 17,000 crore for FY2022E. Majority of FY2022 capitalisation is back-ended and the company has work-in-hand worth Rs. 41,100 crore; thus, we expect earnings growth momentum to sustain (expect 12% PAT CAGR over FY21-FY23E).
• Company has successfully monetized 5 TBCB assets through InvIT and target to further monetise transmission assets worth Rs. 5,000 crore in 12-18 months. Lower capex guidance of Rs. 7,500 crore for FY22 provides room for higher dividend. Board recommended a bonus issue of 3:1.
• We maintain a Buy on stock with a revised PT of Rs. 290 (valued at 1.7x FY23E book value), given earnings visibility, attractive valuation of 1.4x its FY23E P/BV (19% discount to historical P/BV), and healthy dividend yield of 5-6%.
*Sharekhan Stock Idea- 3R Recommendation*
*Tech Mahindra Limited*
*5G to forge growth trajectory*
*Rating: Buy*
(CMP: 1071, Price Target: 1250)
*Company Description*
Incorporated in 1986, Tech M was formed by a joint venture between Mahindra & Mahindra and British Telecom Plc under the name of Mahindra British Telecom. The company has been providing end-to-end services to telecom OEMs and service providers. Over the years, the company has acquired Comviva Technologies, LCC, and Hutchison Global Services to fill gaps in its service offerings in the telecom space. Notably, post the acquisition of Satyam, Tech M entered the enterprise solutions space and became the fifth largest Indian IT player.
*Key Investment Arguments*
• We maintain Buy on Tech Mahindra (Tech M) with a revised PT of Rs. 1,250, given reasonable valuation and potential strong revenue growth because of 5G opportunity.
• Management indicated that the impact of weak seasonality in Comviva business would be lower in Q1FY2022 compared to earlier years. Margin would be impacted by wage revision, visa hike, and weak seasonality.
• We expect Q1FY2021 deal win TCVs to be around 1.5x-2x higher than average quarterly deal win TCVs ($400 million - 500 million), but it would be lower compared to Q4FY2021 ($1.04 billion). The deal pipeline continues to remain healthy.
• Management remains confident on delivering double-digit revenue growth in FY2022 due to strong growth in communication, BFSI, and manufacturing verticals. The company expects EBIT margin at 15%+ despite wage revision and return of travel expenses in 2HFY2022.
*Tech Mahindra Limited*
*5G to forge growth trajectory*
*Rating: Buy*
(CMP: 1071, Price Target: 1250)
*Company Description*
Incorporated in 1986, Tech M was formed by a joint venture between Mahindra & Mahindra and British Telecom Plc under the name of Mahindra British Telecom. The company has been providing end-to-end services to telecom OEMs and service providers. Over the years, the company has acquired Comviva Technologies, LCC, and Hutchison Global Services to fill gaps in its service offerings in the telecom space. Notably, post the acquisition of Satyam, Tech M entered the enterprise solutions space and became the fifth largest Indian IT player.
*Key Investment Arguments*
• We maintain Buy on Tech Mahindra (Tech M) with a revised PT of Rs. 1,250, given reasonable valuation and potential strong revenue growth because of 5G opportunity.
• Management indicated that the impact of weak seasonality in Comviva business would be lower in Q1FY2022 compared to earlier years. Margin would be impacted by wage revision, visa hike, and weak seasonality.
• We expect Q1FY2021 deal win TCVs to be around 1.5x-2x higher than average quarterly deal win TCVs ($400 million - 500 million), but it would be lower compared to Q4FY2021 ($1.04 billion). The deal pipeline continues to remain healthy.
• Management remains confident on delivering double-digit revenue growth in FY2022 due to strong growth in communication, BFSI, and manufacturing verticals. The company expects EBIT margin at 15%+ despite wage revision and return of travel expenses in 2HFY2022.