Power Grid's Rs 1.75 trillion works-in-hand offsets weak first-quarter earnings

Investment View and Valuation

Motilal Oswal Financial Services (MOFSL) reiterated its Neutral rating on Power Grid Corporation of India (PWGR) in its August 7, 2026 result update. The broker described the first quarter of FY27 as weak, with soft earnings and capitalisation, but highlighted PWGR's large works-in-hand, substantial bidding pipeline and long-term transmission opportunity as key supports.

MOFSL values PWGR at 2.5 times FY28 estimated book value per share of Rs 123 to derive its target price of Rs 302.

First-Quarter FY27 Financial Performance

PWGR reported weak standalone operating performance in 1QFY27, with revenue, EBITDA and adjusted PAT below MOFSL's estimates. Other income was substantially ahead of expectations.

Consolidated revenue was Rs 115 billion, up 3% year-on-year and down 1% quarter-on-quarter. Reported consolidated PAT was flat year-on-year and fell 21% sequentially.

Capex, Capitalisation and Regulatory Timing

Management reported 1,635 ckm of transmission additions in 1QFY27, equivalent to about 35% of FY26 additions. Quarterly capex and capitalisation were Rs 77.7 billion and Rs 52.8 billion, respectively.

Management maintained its FY27 capex guidance of Rs 370 billion and capitalisation guidance of Rs 300 billion. Transmission charges increased by about Rs 7.9 billion following the commissioning of new assets. However, depreciation-related regulatory adjustments of about Rs 3.3 billion and interest-related timing differences of about Rs 2.3 billion resulted in a total regulatory drag of about Rs 5.6 billion.

Management said the regulatory drag reflected the timing between tariff petitions and CERC orders rather than a fundamental concern over tariff approvals. The company is entitled to interest at SBI MCLR plus 100 basis points during the intervening period.

Works-in-Hand and TBCB Pipeline

PWGR's works-in-hand stood at about Rs 1.75 trillion, providing substantial revenue visibility. The portfolio comprises approximately Rs 1.46 trillion of tariff-based competitive bidding (TBCB) projects, Rs 20 billion of RTM projects, Rs 42 billion in smart metering, data centres and other businesses, and Rs 50 billion of CWIP.

PWGR won six TBCB projects during FY27 to date, with cumulative annual tariffs exceeding Rs 22 billion. It has about 47% cumulative market share in ISTS TBCB projects since inception. By July 2026, 19 projects had been bid across ISTS and InSTS, of which PWGR won six.

The bidding pipeline exceeds Rs 1.19 trillion, comprising about Rs 738.8 billion under bidding and Rs 450 billion yet to be floated. Approximately 80% of the projects under bidding are interstate and 20% are intrastate.

Structural Transmission Opportunity

Management remains positive on the structural transmission cycle, supported by the proposed 900GW system by 2035-36. This plan involves about Rs 7.9 trillion of investment. Management also cited a Rs 6.4 trillion Northeast and Brahmaputra Basin hydro-linked opportunity and emerging data-centre demand of about 71GW.

Around 21 HVDC projects are visible, including about 14 under the 900GW plan and about six linked to the Brahmaputra Basin. PWGR is also evaluating battery energy storage system opportunities following CERC tariff-regulation amendments for integrated storage systems. The company has filed regulatory petitions after obtaining consent from the Northern and Western regions.

Key Risks and Monitorables

• Execution risk: Right-of-way constraints amid urbanisation could slow capitalisation.
• Pipeline conversion: PWGR's success in the Rs 738 billion project pipeline remains a key monitorable.
• Competitive intensity: Intense competition for TBCB projects could compress yields.

MOFSL expects TBCB to remain the dominant component of PWGR's growth pipeline, while noting that competition remains intense.