Power Grid Sees Moderate Growth In March 2013 Quarter

State owned transmission company, Power Grid reported its Q4 numbers on May 28. The company saw a 7% rise in its total income to Rs 3380 crore. Its net profit grew by 7.5% to Rs 1109 crore.

During the quarter, income from power transmission, its core business, grew by 8% to Rs 3191 crore. Consultancy income, on the other hand, declined by 61%. Its other revenue stream, viz. 'Consultancy income – sale of products' reported revenues of Rs 86 crore. Revenues from the telecom business increased by 16% to Rs 60 crore.

During the quarter, the company’s EBITDA margins declined by nearly 600 basis points to 68.65% on a YoY basis. Sequentially too, there is a decline of about 150 basis points. Higher employee costs, which rose by 26% for the quarter YoY basis, were the main reason why the margins are under pressure.

Interest expenses during the quarter rose by 33% to Rs 680 crore. The interest cover ratio has also declined from 4x in Q4FY12 to 3.2x in Q4FY13. The tax rate remained at 26%, lower than that in Q4FY12.

At its CMP of Rs 112, the stock is trading at the price-to-earnings multiple of 12x. Power Grid is a utility stock, and these always yield profits and are less risky as compared to other industries. In the US, many utility companies trade at valuations of 14x-16x. Ideally, Power Grid should trade at the nearest valuation to its American counterparts. Considering this, its price-to-earnings multiple should be at 14x, which means that the stock should command a price of Rs 130 per share. Investors not willing to consider high risk stocks should invest in this counter, which has a potential of giving 16% returns in one year’s time.