The pricing of Power Grid Corporation India (PGCIL's) FPO has been attractive (Rs 85-Rs 90) against its current market price of Rs 100 (Retail Investors to benefit as there is an additional 5% discount to the discovered/issue price. At the higher band of Rs 90/share, retail applicants would get the stock at Rs 85.5/share.
The issue comprises 841.7mn shares, which would be a 17% dilution of the post issue paid up capital of the company. The Government of India would sell 420.8mn shares and there would be fresh issue of shares for the balance. Post issue, the GOI holding would come down from 86.4% to 69.4%. PGCIL would have a market capitalization of Rs.416bn, post the issue (@Rs90).
PGCIL is a monopoly player in the power transmission sector. As per the CERC norms, PGCIL earns RoE / profits on the regulated equity / capitalized Assets (~16% regulated returns). The capitalization is expected to pick up over the next 5 years, in line with the capacity addition in the power sector (100GW planned for the XIIth 5-year plan; the estimated capex for PGCIL in this plan is estimated at Rs.1100bn against Rs550bn in the XIth plan). The RoE has picked up over the years and stood at 7.6% for the first half of the current fiscal (annualized at 15.2%). PGCIL has paid a dividend of Rs1.5/share for FY10, thus giving a yield of Rs.1.8%, which is likely to improve with the earnings growth. At Rs.85.5/share, PGCIL is valued at 1.7xP/B & 13xP/E on FY12E consensus estimates, which is reasonable on an absolute basis (given the higher RoE’s) and also on a relative basis when compared to utilities like NTPC(2.1xP/B on FY12E).
PGCIL is a must subscribe, given the risk-return profile at the issue price. The issue closes on 12th of November 2010 for retail applicants.
Courtesy- Moneycontrol
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