Power Grid outlook strong on capex push, but valuations look stretched

Power Grid's strong capex pipeline and improved execution support growth outlook, but elevated valuations temper upside for the regulated utility

One of the few stocks to have gained in the past six weeks is Power Grid Corporation of India (PGCIL).

 

The central government-owned utility that undertakes bulk transmission of power across states has raised its capex and capitalisation guidance for FY26 for the second time, to ₹35,000 crore (from ₹32,000 crore) and ₹25,000 crore (from ₹22,000 crore), respectively. It reiterated prior guidance for FY27 and FY28. 

 

PGCIL has actually exceeded its latest FY26 capex target – actual is ₹35,500 crore (as of March 22, 2026) and capitalisation has reached ₹22,700 crore.

 

Capitalisation and capex guidance for FY27 and FY28 were at ₹30,000 crore, ₹35,000 crore and ₹37,000 crore, ₹45,000 crore, respectively. 

The improved capitalisation is due to resolution of Right of Way (RoW) issues and the FY27 guidance may be exceeded. 

Capitalisation-to-capex ratio is improving and now at 0.7x.

 

The management highlighted Central Electricity Authority’s (CEA’s) estimate of transmission capex of ₹7.9 trillion for non-fossil capacities by FY36, with other potential opportunities of ₹3 trillion from undersea projects such as India-UAE/Saudi Arabia and India-Singapore, and in the Brahmaputra basin (₹4 trillion). 

 

Near-term ISTS tenders may be around ₹70,000 crore. This pushes the possible project pipeline to over ₹15 trillion from an earlier ₹9.5-10 trillion. ISTS stands for Inter-State Transmission System.

 

The targets are ₹40,000 crore and ₹35,000 crore of average annual capex and capitalisation respectively over FY29-36. battery energy storage system (BESS) may also be an opportunity. PGCIL could rack up 50 per cent share of an estimated ₹15 trillion pipeline so there’s long-term revenue visibility. The rising capex commitments may lead to cuts in dividend payouts.

 

Gross fixed assets have crossed ₹3 trillion, with a 10-year asset base compound annual growth rate (CAGR) of 10 per cent. The Khavda-Nagpur HVDC (₹35,000 crore) is part of this pipeline and is under execution. No price escalation is expected on tariff-based competitive bidding (TBCB) projects. Any additional tariff may be approved by CERC for force majeure or land compensation cost increases.

 

PGCIL claims system availability at 99.84 per cent with trippings at a record-low 0.25 per line (one trip every four years). It uses AI-based defect detection and drone patrolling. New project execution timelines have been revised to 30-36 months for fewer slippages.

 

Execution momentum has picked up, with transmission line and capacity additions beating targets by large margins in CY26 after PGCIL missed targets in the first three quarters. Up to FY32, the National Electricity Plan (NEP) targets 648,200 ckm (circuit kilometer) of transmission network and 2,411.9 gross value-added (GVA) of transformation capacity, implying 4.3 per cent and 9.1 per cent CAGR, respectively, over FY26–32.

 

PGCIL has often faced issues related to RoW, availability of manpower, and supply-side constraints in transformers and reactors. Many of these have eased. Under new RoW guidelines, the government has revised land compensation values, lowering execution risk. The RoW resolution has shortened cycles. PGCIL has five skill development centres (will scale to seven) for training 1,400 technicians per year. More domestic capacity in transformers and reactors is also having a positive impact.

 

PGCIL has received Ministry of Corporate Affairs (MCA) approval to consolidate 19 special purpose vehicles (SPVs) into two entities and is pursuing the merger of 28 wholly-owned subsidiaries into two wholly-owned subsidiaries.

 

The Department of Investment and Public Asset Management (DIPAM) equity cap per merged SPV has been raised from ₹5,000 crore to ₹7,500 crore, with the management asking for an increase to ₹10,000-15,000 crore.

 

This would reduce the burden of managing 78 SPVs as the pipeline scales making governances easier.

 

The management prefers larger interstate projects where PGCIL's edge in scale counts. PGCIL says it has not been competitive in BESS tenders so far with just one win.

 

The company is revising procurement methodology and looking for advance tie-ups with battery suppliers to optimise costs. BESS could be a big opportunity in future.

 

PGCIL’s significant improvement in execution speeds due to changes in RoW, addressing skilling issues and domestic manufacturing easing supply constraints are all positives.

 

The jump in size of the potential pipeline is also a major positive. However, valuations are high for a utility which has returns that are regulated.