Shares of Power Grid Corp. rose over 4% to an all-time high on Tuesday after the company guided for higher capital expenditure.
Nuvama Institutional Equities retains a 'reduce' rating on the stock and raised the target price to Rs 236 apiece from Rs 215 earlier, implying a potential downside of 31% from the previous close.
The power transmission company has guided for a capex of Rs 18,000 crore, Rs 25,000 crore and Rs 30,000 crore for the current and the next two financial years respectively, according to a note by Nuvama.
However, Powergrid may run out of triggers related to order intake in the near term. It has already bagged a high-voltage power transmission project in the current fiscal and a second one in Khavda, Gujarat, has entered into the bidding stage, according to Nuvama.
The company is unlikely to have enough room to increase capex and capitalisation following its recent upgradation, the brokerage said.
The stock has run up to tailwinds of Rs 2.07-lakh-crore transmission planned over six years. Despite pricing in the higher capex, Powergrid's compound annual growth rate in earnings per share is only going to be 6% over fiscal 2024–27, it estimated.
The reason behind this is high base and four-to-five years of construction period for large high-voltage power transmission projects, and two or two-and-a-half years for heating, ventilation and air-conditioning projects before they start to generate earnings, according to Nuvama. Hence, the brokerage deemed the stock expensive.
Powergrid's stock rose as much as 4.26% during the day to Rs 356.95 apiece on the NSE. It was trading 3.86% higher at Rs 355.55 per share, compared to a 0.23% advance in the benchmark Nifty at 10:39 a.m.
The share price has gained 78.09% in the last 12 months and 49.77% on a year-to-date basis. The total traded volume so far in the day stood at 3.6 times its 30-day average. The relative strength index was at 66.94.
Twelve out of the 21 analysts tracking the company have a 'buy' rating on the stock, two recommend 'hold' and seven suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 10.5%
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