Analysts' corner

Power Grid Corporation, Sintex Industries & Jaiprakash Associates

POWER GRID CORPORATION
Reco price/date: Rs 112/July 16
Current/target price: Rs 111.85/Rs 132
Augmenting capex, followed by higher capitalisation (superior project execution run rate) of power transmission assets, would boost core earnings of Power Grid Corporation of India Ltd (PGCIL). We believe PGCIL remains the safest bet among power transmission companies due to its annuity-based business model (15.5 per cent post-tax regulated RoE), despite the sector’s structural issues. Core demand, higher inter-regional capacity to limit regional deficits and reforms in the distribution space (state electricity boards’ losses, open access) are expected to increase the need for transmission corridors. We believe PGCIL is attractively positioned at the beginning of the 12th Five Year Plan (FY13-17), considering the huge capex outlay planned, driving up its regulated equity. Maintain Buy.

Nirmal Bang

SINTEX INDUSTRIES
Reco price/date: Rs 67/July 16
Current/target price: Rs 63.60/Rs 71
Sintex Industries Ltd’s (SIL) Q1FY13 numbers were above our estimates on account of better-than-expected performance in the custom moulding (CM) segment. Net sales declined about three per cent YoY to Rs 1,076 crore (our estimate Rs 1,010 crore), while the Ebitda margin dropped 55 bps YoY to 16.5 per cent (our estimate: 14.6 per cent). The monolithic construction business remained a drag due to a slowdown in approvals/clearances with delays in government orders, while a slowdown in Euro zone industrial activities led to a decline in overseas CM revenues. We expect order execution in the monolithic business to remain weak in FY13E, coupled with a challenging demand environment in overseas subsidiaries. We forecast flattish growth in the bottomline in FY13E, with margins under pressure. Maintain Hold.

ICICI Direct

JAIPRAKASH ASSOCIATES
Reco price/date: Rs 77.55/July 16
Current/target price: Rs 76.95/Rs 112
We think Jaiprakash Associates shares have substantial upside potential (irrespective of its part cement sale), as the company monetises resources (coal, hydro and realty) to improve profitability and peak its capex. The key catalysts for the stock would be a jump in free cash flow and deleverage over FY12-15E, as JPA reaps the full benefit of the 1.2GW Karcham hydroelectric project, 1.3GW Nigrie captive coal-based project, the Yamuna Expressway; better utilisation/pricing in the cement sector; peaking of capex in the cement & expressway segments and bond repayment. Maintain our Rs 112 price objective on our top infra conglomerate as it trades at a 31 per cent discount to our one-year NAV estimate and 1.5x our FY13E P/BV. Maintain Buy.

Bank of America Merrill Lynch