Outlook Business — December 07, 2017

78

My Best Pick

22 December 2017 / Outlook BUSINESS

I

ndia’s infrastructure is expected to witness

a substantial boost in the coming years,

backed by the government’s core sector

push. The Centre had allocated a record

# 3. 69 lakh crore to infrastructure in the previous

Budget. A lot of other factors, too, have come togeth-

er, making it a propitious time for the sector. Moody’s

has just delivered the good news of a rating upgrade,

which will, in turn, favourably impact the rating of

public sector enterprises. With bank recapitalisation

in the works as well, we see infrastructure as a sector

to go long on.

Utilities have always been considered as an option

that enables investors to capture higher-than-aver-

age dividend. Also, utilities are low-beta stocks and

provide relatively stable growth. Given the current

state of development and policy environment, Pow-

ergrid Corporation of India provides a superior com-

bination of growth and stability. I see this as the best

utility stock which will see a sustained appreciation

over the next four to fi ve years.

The government seems determined to pursue a path

of investment-led growth with infrastructure as the

key area. The current regime intends to provide 24 x 7

reliable power supply and is working towards policies

to enable that. Further, the Ujwal Discom Assurance

Yojana scheme has reduced losses in state-run utili-

ties and improved effi ciencies. Transmission and dis-

tribution sectors had accumulated losses of about 4 %

of GDP and 22 % of all outstanding bank debt was in

the power sector by the end of 2015. The scheme aims

to bring the gap between average tariff realised and

average cost of supply to zero.

The current regime also aims to make the power

purchase agreements enforceable, which have severe-

ly hurt power generating companies, especially in the

renewable space. The Centre is targeting generation

of two trillion units of energy by 2019. This means

increasing the current production capacity by two

times more to provide 24 x 7 electricity.

This is the reason why utilities should deliver a supe-

rior risk-adjusted return in an economy such as India.

Though, not all utility stocks are of investment grade,

Powergrid, which transmits more than 50 % of total

power generated in the country, certainly makes the

cut. The company is also setting superior standards

in project management and operations for the indus-

try, leveraging capabilities to consistently generate

maximum value for all stakeholders.

BEST OF THE REST

Powergrid has been ranked as the fastest growing

electric utility company in Asia for the past four

consecutive years. The company owns and operates

about 85 % of the country’s total extra-high voltage/

ultra-high voltage transmission network. It has main-

tained availability of transmission at 99. 8 % in FY 17 ,

highest by Indian standards.

The company has also diversifi ed into railway elec-

trifi cation, telecom towers and data centres. Indian

Railways plans to electrify all its routes by FY 21 -

FY 22 , for which Powergrid has already started imple-

menting pilot projects. Other opportunities include

30 GW wind, 20 GW solar ultra-mega power plant and

7 GW nuclear integration into the national grid. Pow-

ergrid’s management has also consciously sought to

diversify revenue streams by increasing the share of

consultancy fees and engineering, procurement and

construction work. Newer avenues can emerge from

smart cities and electric vehicles. The company has

Note: Market related data as on December 1, 2017; Financials for

FY17; Consolidated fi nancials considered wherever applicable

Data: Ace Equity

Lion’s share

Powergrid is the market leader in power transmission

No. of participated projects (as on Oct 2017)

Powergrid

Others 2,280

2,778 55%

45%

Source: Company

net sales#25 ,704cr

stock price# 203 M-CAP#1 , 06 ,123cr

ROE 16.84%