Why Power Grid Share Price is Falling

The share price of state-owned power transmission company, Power Grid Corporation, declined for the seventh day yesterday and fell as much as 8%.

Power sector stocks have been under pressure since the Russia-Ukraine conflict drove up the cost of petroleum, natural gas, and coal.

With this negative sentiment, best power stocks have seen a correction in 2022. One such stock that saw a major correction recently was Power Grid.

The stock lost as much as 330 bn in market capitalisation.

What dragged the stock lower?

Read on to find out the probable reason for the fall.

#1 REC acquisition deal

REC has asked the government to consider selling Power Finance Corp's (PFC) stake in the company to PGCIL.

This would give Power Finance and REC exposure to different credit limits as separate companies, potentially resulting in higher project funding.

As Power Grid does not have any experience in financing projects, it would result in diversification for the company.

However, this would be a near-term dampener, further impacting the financial year 2023's earnings.

Additionally, dividend pay-out would likely be lower down due to lower cash outflow. The dividend yield could come in lower at 4% vs 6%.

Due to this deal, Power Grid shares fell 24% between 21 September 2022 to 26 September 2022.

However, the government has rejected this proposal. It argued the move will hurt the two companies in the otherwise ailing sector and operational and administrative issues that might crop up after the deal.

#2 Disappointing quarterly results

For the June 2022 quarter, Power Grid reported weak results.

The company registered a marginal growth in revenue at Rs 111.7 bn. However, the company's net profit showed a decline of 36.6% YoY to Rs 37.3 bn.

This was due to the inclusion of an exceptional item of Rs 30.1 bn on account of monetisation of assets. The company also incurred a capital expenditure of Rs 14.8 bn dragging the net profit down.

#3 Overleveraged

Power Grid Corporation of India has a liability of Rs 448.3 bn which is due within a year, and Rs 1.3 tn due beyond that.

However, this debt has marginally reduced to Rs 1.4 tn from Rs 1.5 tn but is still high.

The company has liability totalling to Rs 1.6 tn more than its cash and near-term receivables. This has created a negative impact on the stock.

How Power Grid has performed on the bourses recently

Over the past one week, shares of Power Grid are down more than 15%. Over the last one month, the shares are down by 10%.

So far in 2022, the stock is down by 0.3%. And over the past one year, shares are up by 16.1%.

Power Grid shares touched a 52-week high of Rs 248.4 on 10 May 2022 and a 52-week low of Rs 172.6 on 27 September 2022.

The stock is currently trading at a PE ratio of 9.15x and PBV (Price to Book Value) of 2.1x.

About Power Grid

Power Grid Corporation of India Ltd (PGCIL) is India's principal electric power transmission company.

The company is engaged in the transmission of bulk power across different states of India. It owns and operates 90% of India's interstate and inter-regional electric power transmission system.

The company's business segments are Transmission Consultancy Telecom and ULDC/ RLDC. This is at par with international utilities.

As creating a nationwide grid requires significant capital, which can only be provided by the government, makes Power Grid a strong monopoly player.

On top of this, it is a dividend rich stock. The dividend yield at the current price is well over 6%.

For more details, check out Power Grid company fact sheet and quarterly results.

You can also compare Power Grid with its peers.

Power Grid vs Adani Power

Power Grid vs Tata Power

Power Grid vs NTPC

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