Power Grid Corporation, a Maharatna Central Public Sector Undertaking (CPSU) and the largest electric power transmission company, saw its shares zoom 4.67 per cent to touch a fresh record high of ₹366.25 apiece in today’s intraday session. Today’s rally in shares followed a 2.6 per cent jump in the previous trading session, bringing the stock’s total gain to 10 per cent over the last four trading sessions.
This recent surge came after domestic brokerage firm Motilal Oswal initiated coverage on the stock with a ‘buy’ rating, setting a target price of ₹425. The brokerage said India’s ambitious target to expand its renewable energy capacity to 500 GW by 2030, along with the upcoming battery storage and pumped hydro projects coupled with India’s aspirations to be part of global energy initiatives like “One World, One Grid,” are key growth drivers for the company.
The brokerage estimates a transmission opportunity worth ₹2 trillion in the Indian power sector, where the company holds a dominant market share of 50–60 per cent. This positions the company as the leading player to capitalize on these opportunities.
Additionally, Power Grid Corporation capital expenditure (Capex) and capitalization trends are on the rise, with consolidated Capex expected to grow by 20 per cent in FY25 and capitalization set to double in FY25.
The company earnings outlook is strong thanks to its robust work pipeline, with an order book-to-revenue ratio of 2.5x as of 1QFY25 end. It notes that Power Grid’s success in securing high-voltage direct current (HVDC) projects, where it enjoys a higher win ratio than private peers, will drive higher returns on equity (ROE).
Concerns over the rising share of tariff-based competitive bidding (TBCB) projects are overstated, according to Motilal Oswal. The brokerage pointed out that TBCB operations accounted for just 5 per cent of Power Grid’s consolidated equity in FY24. Additionally, upcoming HVDC projects under regulated tariff mechanisms (RTM) will yield higher internal rates of return (IRR).
Despite virtually no commodity risk/minimal execution risk, the company boasts a higher dividend yield (FY26: 3.5 per cent) vs. other transmission/city gas utilities (GAIL, GSPL, IGL, MGL, Gujarat Gas), which, as per the brokerage, protects downside risk despite the stock trading at a multi-year high 1-year fwd PE of 18x.
“We like PWGR as a bellwether play on the INR2t transmission opportunity with limited competition in the more complex HVDC space, where it already has an established track record. Even at 17x FY27PE and 9x EV/EBITDA, the implied dividend yield is 3.5 per cent, which we believe is attractive,” said the brokerage.
Up over 290% in 4 years
The shares began their upward surge in September 2020 and have continued to climb steadily without any significant pullbacks, gaining momentum month after month. Over this period, the stock has skyrocketed from ₹91.40 to the current trading price of ₹359, reflecting an impressive 293 per cent increase.
Earlier in April, global brokerage firm Goldman Sachs has also initiated coverage on the stock with a target price of ₹355 per share, estimating that India’s power transmission capital expenditure will exceed USD 500 billion by FY50. This accounts for about 30 per cent of the total energy transition capital outlay.
The firm expects the company to be the biggest beneficiary of this shift, capturing a significant portion of the projected grid total addressable market (TAM) between FY24 and FY50, which represents one-third of India’s total energy transition TAM.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
