Friday, October 29, 2010

FPO ANALYSIS: POWER GRID CORPORATION LIMITED. STAY CONNECTED - APPLY



The country’s principal electric power transmission company, a Mini-Ratna, is entering the capital market on 09-11-10 with further public issue of shares. Further issue consists of fresh issue of 42,08,84,123 and offer for sale of 42,08,84,123 equity shares of Rs 10 each. The price band has not been decided.
The issue closes on 12-11-10.

SBI Capital Markets, Goldman Sachs (India), ICICI Securities, and J.P. Morgan are the BRLMs.

The company came out with an IPO in Oct -2007 at a price of Rs 52/- As against this, the shares were listed at almost 100% premium in the exchanges. In the last 52 week the share has touched a high of Rs 121 and low of Rs 95/- and currently trading around Rs 100/-. The pricing would be attractive. Retail investors are eligible for 5% discount. The company has a decent dividend payment record.

BUSINESS:

The company owns and operates more than 95% of India’s interstate and inter-regional electric power transmission system (ISTS). In that capacity, the company currently owns and operates 79,556 circuit kilometers of electrical transmission lines and 132 electrical substations. In Fiscal 2010, Power Grid transmitted approximately 363.72 billion units of electricity, representing approximately 47% of all the power generated in the country. In the six months ended September 30, 2010, the company transmitted approximately 202.59 billion units of electricity, representing approximately 51% of all the power generated in the country. The World Bank had ranked Power Grid as the world’s third largest transmission utility in January 2009.  

OBJECTS OF THE ISSUE:



The Offer for Sale:

The object of the Offer for Sale is to carry out the disinvestment of 420,884,123 Equity Shares of ` 10 each by the government. The Company will not receive any of the proceeds from the Offer for Sale.

The Fresh Issue:

The objects of the Fresh Issue are to:
 
(a)     To meet the capital requirements for the implementation of certain identified transmission projects.
 
(b)     General corporate purposes.




FINANCIALS:

Rs in crores


2009

2010

TOTAL INCOME

6138.72

7503.58

PAT

1690.61

2040.94

EPS (Rs)

      4.02
  
      4.85


RISKS:

Power Grid receives most of its revenue from the transmission of power to the State Power Utilities and many of these entities have had weak credit histories in the past. Six transmission projects for which the company intends to utilize the Net Proceeds have been delayed

The expansion plans require significant capital expenditure. If the company is unable to obtain the necessary funds, the growth plans could be adversely affected.

Because of delay in revenues receipts, the company, resorts to borrowing.

The new CERC regulations, which will come into force from January 1, 2011, will implement a ‘point of connection’ method for sharing the transmission charges for the inter-state transmission system in the country, replacing the present system.

The new regulations provides for the yearly transmission charges, revenue requirement because of foreign exchange rate variation, changes in interest rates and losses will be shared amongst the users, including larger generating stations, state electricity boards, state transmission utilities, bulk consumers connected directly with the inter-state transmission system and any designated entity representing a physically connected entity listed above. This will have some impact on profitability.



STRENGTHS:

• Leadership position in Indian power transmission sector.
• High operational efficiencies.
• Effective project implementation track record.
• Attractive tariffs, competitive business model.
• Diversified business portfolio.
• Strong financial position and cash flow from operations.
• Government support.


VALUATION AND RECOMMENDATIONS:

Currently, the shares are trading at18 PE. The company, on the post issue capital of Rs 4629.72cr, will be able to maintain an EPS around 5 in the coming years.  The shares are currently trading around Rs 100/- There will be listing gains taking into consideration the discount offered to the retail investors.  The company operates in power sector, which is a high growth segment. Invest for study and stable return.

13 comments:

  1. Thanks mate... what price do you think should be fair to apply in this ipo?

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  2. Apply at cut-off. There will be listing gains.

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  3. Prasanna,

    The current market price is around Rs.101 and also they are coming with a fresh issue of equity (42,08,84,123) along with offer for sale from the GOI, in that case, the increased equity will dilute the market price from the current level of Rs.101. So I think its better to apply only if the issue price is fixed between 80-85 with retail discount or else we can buy from the market after the IPO. What do you say?

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  4. Definitely, increased equity to some extent will dilute the market price.I think they will price it around, what you have indicated. Even in EIL case, govt priced the FPO offer aptly leaving some thing for the new investors. Retail investors will get discount. The listing gain will be around 10%. Apply.

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  5. As I have been regularly following your Advices, I have made arrangements for Funds to apply for the FPO. Nevertheless, I would like to know your Opinion, after the FPO price is announced. This is because due to overwhelming response from almost all categories of Investors, the Govt., may tend to fix the price at a little higher level

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  6. There will be something left for investors + discount. I shall post my views again, once the FPO price is announced.

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  7. price band at 85-90 looks good what do you say?

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  8. Dear Prasanna,
    As per your advice, I applied to Coal India and got the listing gain of Rs. 14,000/-.

    Thank you very much.

    I will follow your advice on Power Grid also.

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  9. Thanks. I had told you in advance that you would make money in Coal India.

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  10. Thanks prasanna. I applied for CIL on your advice. We people are realy dependent on people like you. thanks again.

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