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Diwali Muharat Buy - PowerGrid Corp. For Target 150/-

PGCIL's long term prospects are better than most players in the power sector due to its monopoly in the power transmission segment. The stock besides being a defensive play can be tremendously wealth accretive if the execution risks in the power sector are eased out. PGCIL is expecting the additional revenues from leasing its towers to telecom operators and power consulting to boost its revenue growth and return ratios. However, we believe that it is too premature to factor in the same into our estimates.

The main competitor to PGCIL in terms of valuations is NTPC. While both operate in different segments of the power sector, their business nature is almost same - regulated returns. We see PGCIL to be a marginally high risk play as compared to NTPC. This is purely from the high regulated equity that the latter enjoys as also the greater flexibility it has in improving the same. Also, while NTPC is not dependent on others for growth, PGCIL has to depend on generation capacities to come up in order to grow its transmission assets. This is the reason we have valued PGCIL at a discount to NTPC.

The stock of PGCIL has gained around 14% since we recommended it in April 2011. At current valuations, we recommend investors to 'Hold' on to the stock with a target price of Rs 150 from a two to three year perspective. However, if the stock were to fall by 10% from current levels, one can 'Buy' into the same, provided it does not comprise more than 5% of their portfolio.