Power Grid Corporation - Updates

Power Grid Corporation

Strong operational performance

Power Grid Corporation for the first quarter ended Jun'08 reported 33%
increase in sales at Rs 1294.03 crore. The operating margin expanded by 40
bps to 82.5% propelling the operating profit up by 33% to Rs 1068.14 crore.
However spurt in other income and depreciation charges dented the PBT by 35%
to Rs 354.24 crore. The PAT settled at Rs 305.69 crore with a fall of 32%
y-o-y after accounting for tax and prior period item.

Quarterly performance

Revenue for the quarter ended Jun'08 reported 33% increase to Rs 1294.03
crore compared to Rs 975.47 crore in the corresponding previous quarter. The
income from transmission contributed almost 94% of the total revenue with an
increase of 39% to Rs 1214.14 crore. Consultancy income also inched up by 5%
to Rs 33.09 crore. While the income from telecom and short term open access
- transmission charges declined by 32% and 48% to Rs 40.66 crore and Rs 6.14
crore respectively.

The operating margin expanded by 40 bps to 82.5% propelling the operating
profit up by 33% to Rs 1068.14 crore. Further with the other income
increasing by 42% to Rs 113.88 crore, the PBIDT increased by 34% to Rs
1182.02 crore. Other income included Rs 34.24 crore of interest on bonds and
long term advances; Rs 12.42 crore of Lease income, Rs 28.97 crore of
Interest from banks and Rs 18.35 crore of Interest from banks.

The staff cost for the period, which formed a part of expenditure, increased
by 42% to Rs 151.59 crore. Based on the recommendations of the committee
formed by GOI, a sum of Rs 28.72 crore (net of amount charged to
construction) has been charged to P/L on account of wage revision provision
for the quarter against Rs 22.34 crore for the quarter ended Jun '08.

The interest cost increased by whopping 400% to Rs 563.99 crore out of which
Rs 73.55 crore is towards FERV as adjustment in borrowing cost, Rs 23.60
crore is towards rebate to customers and Rs 122.96 crore is towards FERV
above domestic borrowing cost. Further with the depreciation provision
increasing by 17% to Rs 263.79 crore, the PBT declined by 35% to Rs 354.24
crore. After accounting for a prior period item of Rs 0.59 crore and tax
provision of Rs 47.96 crore, the PAT for the quarter declined by 32% to Rs
305.69 crore.

Without considering the impact of FERV, net profit after tax for the quarter
ending June 2008 is Rs 3650.70 million as against Rs. 2538.40 million for
the quarter ending June 2007. The increase of 43.82% is due to commissioning
of new transmission assets of Rs 24853.90 million in the current quarter and
also the impact of commissioning of assets of Rs 59581.90 million during
last year in various stages.

In respect of Foreign-Currency loans contracted on or after April 01, 2004,
FERV which is accounted for on accrual basis and hitherto taken to Profit &
Loss Account during construction stage is now being accounted for, with
retrospective effect from April 01, 2006 i.e. the year of first withdrawal
of these loans, as deferred foreign currency fluctuation asset liability
account' with a corresponding credit/debit to Profit & Loss Account /
deferred income in accordance with the above referred opinion of EAC of ICAI
and in tune with the 'matching' concept of income and expenditure. This has
resulted in increase in Profit by Rs. 717.70 million for the current quarter
in the Profit & loss account.

There is a swing of Rs 2577.20 million on account of FERV between the
quarters ending June 2008 and June 2007. A gain of Rs 1983.40 million, which
was accounted for during the quarter ended June 2007, was reversed at the
end of Financial Year 2007-08 in accordance with the opinions of EAC of
ICAI. During the current quarter, FERV loss of Rs 593.80 million has been
accounted for which includes reversal of Rs 510.80 million gain, accounted
for in 2007-08, in accordance with the change of accounting treatment as
stated above.

Out of Rs 1965.10 million i.e., Rs. 735.50 million & 1229.60 million stated
at Sr. No, 5(b) & (d) respectively of the Unaudited Results (Rs. 1983.40
million gain in the corresponding quarter of the last year), charged to
Profit & Loss account, a sum of Rs 1371.30 million including Rs 717.70
million as stated above and (Nil in the corresponding quarter of the last
year) is recoverable from SEB's and the same is included in transmission
income. The balance Amount of Rs 593.80 million has been charged to Profit &
loss Account.

The scrip of the company currently trades at Rs 98.