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March 20, 2023Power Grid is a government-owned company that started in 1984 and was listed on the Indian stock exchange in 2008. The company belongs to the Transmission part of the Indian Power industry and operates a whopping 90% of India’s transmission network. It is one of the most critical infrastructure companies where a failure would completely halt the country. The company is one of the largest transmission companies in the world and has performed admirably both operationally and financially over the years. Power Grid has also paid consistent dividends over the last three decades and sports a AAA credit rating.
Power Grid Pros
Unlike distribution companies in India, Power Grid faces no problem in getting payments on time and has good management under the central government. Over the years the company has built strong technical expertise in this business which is unrivaled. Earlier Power Grid used to get the work of building new transmission networks on a nomination basis. However, the government has opened up to the private sector as well but their share remains minuscule as Power Grid still wins the TPCB auction.
Booming Green Energy & Decarbonization Trends
Power Grid is also given the work of building Green Energy Corridors by the government. It will also build a transmission network from Ladakh for which the central government is giving Rs.22,000 crore in the recent budget to transmit 10 GW of power. Power Grid is also venturing into new-age businesses like solar, data centers, EV charging stations, etc. It also earns money from telecom and consulting businesses. Power Grid is also expected to be a big beneficiary of PM Modi’s One Sun One World One Grid project where transmission lines, to transmit solar energy primarily, to the Middle-East and South-East Asian countries are planned.
I expect Power Grid to keep growing with a resurgence in renewable energy. Globally, trillions of dollars will be spent to decarbonize, as renewable energy will need to be transmitted from deserts and oceans to cities.
Strong Financials
Over the past Power Grid has grown its sales by 15% and profits by 16% CAGR which is awesome, on a consistent basis. The company operates a recession-proof business means it does not see much volatility and remained unaffected even during the COVID days. Its ROE has also improved to ~19%. The company generates an operating cash flow of Rs.30K crores and has an astounding OCF yield of ~20%. The dividend payout has also increased to ~60% from ~30% in the last ten years and sports a solid dividend yield of 5.6%. The company also monetized its huge asset base through INVITs.
All in all a good compounder to keep with a solid dividend yield and strong decarbonization trends, to boot.