Power Grid Corporation: Recommendation Review

Book Profits:

We had recommended Power Grid Corporation of India (PGCIL) in DSIJ Vol. 26, Issue No. 22 (dated Oct 10-23, 2011), when the scrip was trading at Rs 96. We reviewed the counter again in DSIJ Vol. 27, Issue No. 6 (dated February 27-March 11, 2012), when it was trading at Rs 110. Despite some good appreciation within a very short span of time, we had asked investors to hold on to the counter as we expected it to touch at least Rs 120. Our conviction in the stock was backed by the company’s expansion plans and the expectations of a better financial performance.

On 31st July, 2012, the scrip witnessed a sharp up-move and was trading at Rs 120. With our target achieved, we had advised investors through our ‘Book Profit’ SMS service to book profits in the counter.

Many investors would be interested in knowing the impact of the recent grid failure in the northern states of India on PGCIL. Well, we feel that the event has hardly had an impact on the scrip. In fact, as the grid failure occurred due to overdrawing of power by the states, it may actually end up as a positive trigger, with PGCIL getting more authority to control the usage.

The financial performance of the company during the quarter ended June 2012 has been good, with it posting a topline of Rs 2888.25 crore and a bottomline of Rs 870.11 crore as against Rs 2202.49 crore and Rs 705.29 crore respectively during the quarter ended June 2011. On the valuations front, the scrip is trading at 17x its trailing four-quarter earnings. We recommend booking profits at the current levels.