Motilal Oswal is bullish on Power Grid has recommended buy rating on the stock with a target price of Rs 287 in its research report dated April 05, 2018.
Motilal Oswal's research report on Power Grid
We analyzed the tariff-based competitive bidding (TBCB) projects from the annual reports of Power Grid’s (PWGR) subsidiaries. In our view, PWGR will generate more than 14% equity IRR (debt/equity ratio of 80/20) on its TBCB projects. The equity IRR on the three projects that are fully commissioned is ~24-38%. PWGR enjoys a competitive edge due to its (a) low cost of borrowed funds, (b) dominant position with suppliers and (c) vast geographical spread, which should continue driving healthy returns.
Outlook
If we were to assume no growth after FY20, which means PAT is available for dividend distribution, the stock is trading at an attractive dividend yield of ~11% for an assured return model and revenues backed by state-guarantees (g-sec yield is ~7 to 8%). We re-iterate our Buy rating with a DCF-based target price of INR287/share.For all recommendations report, click here
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