Bernstein initiates coverage on Power Grid; here is why brokerage is positive on PSU power stock

Power Grid Corporation shares saw buying interest on Tuesday, bucking a largely negative trend in the Nifty Energy index, after Bernstein initiated coverage on the state-run power transmission stock with an 'outperform' rating and a target price of Rs 315. The Power Grid stock gained by as much as Rs 12.1, or 4.4 per cent, to Rs 288.6 apiece on BSE, coming within inches of an all-time high of Rs 289.5 registered on February 5.  The foreign brokerage's target implies an upside of 13.9 per cent in the PSU stock from Monday's close. 

At 12:20 pm, Power Grid shares held on firmly to the green, with a gain of Rs 4.1 per cent, at Rs 287.8 apiece on the bourse, outperforming a 0.9 per cent rise in the S&P BSE Power index, whose 13 constituents include NTPC, BHEL, NHPC and Tata Power, besides Power Grid. 

What does the brokerage make of Power Grid?

According to Bernstein:

• Power Grid is likely to register a 30 per cent increase in capex over the next two years
• Inter-state transmissions, batteries and smart meters are the new growth areas for the state-owned utility major  
• Power Grid is a low-beta stock, with: 
  • 18 per cent ROE
  • 8 per cent PAT growth
• Power Grid has access to steady cash from existing assets
• It enjoys a low cost of debt
• Regulatory support augurs well for Power Grid

Jefferies, which has a 'buy' rating on the PSU with a target of Rs 305 per share, the initial read of the draft regulation suggests generation incentives/operations and maintenance (O&M) have seen a positive tweak. 

In January, the Central Electricity Regulatory Commission (CERC) issued tariff draft regulations for the FY25–29 period.

Jefferies maintained its bullish stance on the power sector after the release of the regulations.

What other analysts make of the PSU stock

Twenty analysts have a consensus 'hold' call on Power Grid, with eight of them suggesting a 'strong buy', according to stock research portal Trendlyne.

On Tuesday, PGCIL shares traded above their 50-, 100- and 200-day simple moving averages (SMAs), according to Trendlyne.

Power Grid shares: Past performance

Power Grid Corporation shares have rewarded investors with a return of 78 per cent in the past year, outperforming a 19.9 per cent rise in the headline Sensex index, but underperforming a 94.8 per cent surge in the power gauge. 

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