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Commissioning of a few big ticket projects this quarter is likely to improve the earnings visibility of India's largest power transmission firm Power Grid Corporation (PGC).
An increase in the capitalisation -with assets which were under expansion beginning to contribute to profits -boils down to higher profit through assured returns (that is linked to equity contribution towards total assets).
PGC is entitled to 15.5% return on equity deployed in all nominated commissioned projects. This is called regulated equity. Higher regulated equity translates into higher earnings for the next year.
In its recent analyst meet, senior officials said that PGC was targeting capitalisation of Rs 1.46 lakh crore (including Rs 28,000 crore in FY17) over the next four years. Similarly, its capital expenditure is expected to be Rs 1 lakh crore in the next four years.
Due to a high capitalisation schedule, the company has high certainty of over 16% annualised earnings growth between FY16 and FY20. Due to a high capitalisation, net profit grew 20% to Rs 1,930 crore in the December quarter as revenues from ransmission business rose 21.6%.
The company has given a guidance of Rs 22,500 crore and Rs 28,000 crore of capex and capitalisation, respectively, till March. In the first nine months of FY17, it has capitalised assets worth Rs 16,000 crore. This means nearly Rs 12,000 crore of assets will be capitalised in Q4.
The company may meet its guidance as phase 1 of the Rs 6,500-crore ChampaKurukshetra High Voltage Direct Line is likely to commission in February 2017 and phase 2 of North East-Agra Line will start operations in Q4 of FY17.
Since April 2016, PGC has commissioned projects worth Rs 20,700 crore and incurred capex of Rs 17,900 crore -maintaining capitalisation to capex ratio of more than one.
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