Power and Energy, Trending in the Economy

Power Grid Corporation of India Ltd – Backbone of Indian Energy System

Power grid is the Maharatan of India with a market share of more than 85% in interstate transmission system.

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(A) About

Power Grid Corporation of india - Logo

Power grid Corporation of India is India's principal electric power transmission company responsible for developing, implementing, operating and maintaining interstate transmission systems as well as national and regional load dispatch centres. It owns more than 85% of India's interstate and inter-regional electric power transmission system.

(B) Business Model

Power Grid - Business model

Powergrid, also known as Power Grid Corporation of India Limited, was established by the Indian government in 1989. Initially, it had exclusive rights to build inter-state transmission networks until 2011. Despite the entry of private companies, Powergrid still owns approximately 85% of the inter-state network and about 45% of the total domestic network.

Business operations are distributed into 3 segments: transmission, telecom, and consultancy, with the transmission segment accounting for more than 97% of total revenue from operations.

In transmission company earns revenue like an OTT platform i.e. it doesn't matter how much you use you have to pay a subscription fee to it.

(C) Journey

Power Grid Corporation of india - Journey

(D) Board Members

(E) Shareholding Pattern

Power Grid Corporation of india - Shareholding Pattern
Power Grid Corporation of india - Shareholding

(F) Business Segment

Power Grid Corporation of india - Business Segment

(i) Transmission - Company principal business is transmission of bulk power across different states of India.

(ii) Telecom Services - Company utilizes the spare optical fibers available in the optical ground wire (OPGW) laid on the transmission network for providing telecom services. It also operates as a neutral carrier in the point to point brandwidth leasing business.

(iii) Consultancy services - It provides consultancy services in the transmission, distribution and telecom sector, including planning design, engineering, load dispatch, OPGW on Inter state transmission network, Procurement management, Operation & Maintenance, Financing and also to Project Management.

(iv) New Business Areas - These includes smart grid which provides a platform where technology meets sustainable energy management, Battery Energy Storage System (BESS) which provides energy efficient management these provide rechargable batteries to store excess energy during times of low consumption.

(G) Revenue Segment

Power Grid Corporation of india - Segment Revenue

(H) Cost Structure

Power Grid Corporation of india - Cost Structure

(I) Financials

Power Grid Corporation of india - Financials

Company has grown its revenue at 12.69% in past 10 years, while PAT grew at a CAGR of 14.53%. Moreover, company’s has reduced it Debt to equity from 2.4x in 2014 to 1.5x in 2023.

Power Grid Corporation of india - Du Pont Analysis

(J) Management Discussion & Concall Highlights

Concall Highlights

  • Telecom business, the revenue grew up by 11.5% YoY to Rs 212.1 Cr.
  • Meanwhile, the consultancy business reported a revenue of Rs 126.7 Cr which decline by 47% YoY due to one project is near completion.
  • Furthermore, company has project in hand worth Rs 48700 Cr.
  • During the quarter they have completed 2 sub-station and 1428 circuit km of transmission lines during the quarter.

Need for Growth in Transmission Sector

  • Growing per capita demand.
  • Interstate transmission
  • Cross border linkage
  • Addition of renewable capacity in renewable space.
  • Also the modernisation of grid to make sure the grid adopts all the new emerging technologies.
  • India has agreement in place with neighboring countries to transmit power, so that naturally calls for more transmission asset and better network.
  • Moreover, despite having a growth of 6-8% annually for the last decade the per capita electricity consumption in india is less than half the global average.

Competitive Advantages / Moat

  • Company is a virtual monopoly in inter-state transmission, with 85% of inter-regional capacity. There is also very low chances that existing contracts will be cancelled as there is usually 1 high voltage transmission line connected power sources to demand centres.
  • Meanwhile duplicating or replacement power grid existing infrastructure would be highly capital intensive.
  • Furthermore, company has high visibility of future cash flows as TSA (Transmission Service Agreements) usually have contract length of 25+ years. New contracts are usually granted to the single bidder, so the return on equity is predictable for the entire contract period.

Outlook

  • Management guided to lay its focus on telecom business and targets to reach revenue of more than Rs 800 Cr in FY24 from this segment.
  • Moreover company is attempting to venture into new business verticals. They are also executing projects for dedicated transmission lines in some of the hydro & renewable business.
  • They have a capex plan of ~Rs 8800 cr for FY24, however they might increase this spending, going forward. Company's estimated capex outlay by 2032 stands at ~ Rs 188000 Cr.

(K) Strengths & Weaknesses

Strengths

  • Power Grid has long-term transmission service agreements with diversified beneficiaries providing revenue visibility. Moreover, for vast majority of its assets, PGCIL’s transmission charges are governed by tariff norms determined by the CERC which ensures a fixed return on equity (RoE) recovery of operation and maintenance (O&M) expenses, interest cost and depreciation. This mechanism ensures full recovery of its cost.
  • Duplicating or replacing Powergrid’s existing infrastructure would be highly capital intensive. Hence, the company is very likely to renew a majority of exiting contracts upon their expiry.

Weakness

  • The timely collection of dues from various state-owned utilities continues to be a challenge given the weak credit profile of those entities.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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