Expect 37% upside from Power Grid’s FPO price: Motilal Oswal

MUMBAI: Motilal Oswal has maintained ‘Buy’ recommendation on Power Grid Corporation ( PGCIL) after the state owned company has entered the capital market to raise around Rs 7600 crore via follow-on public offer. The FPO price band is fixed at Rs 85-90 per share.

The brokerage has a target of Rs 123 on the stock, an upside of around 37% from the cap price.

“We expect PGCIL's regulated asset base (RAB) to increase from Rs 113 billion as at March 2010 to Rs 173 billion by FY12 (up 50%+), with projects of ~Rs 200 billion being commissioned and capitalized in this period.

We expect the company to report a net profit of Rs 26.6 billion in FY11 (up 15%) and Rs 33.3 billion in FY12 (up 25%). Given the delays in terms of asset capitalization and post factoring in possible equity dilution, we marginally cut our EPS estimates by 4% for FY11 to Rs 5.7 and by 6.8% for FY 12 to Rs 7.2. We maintain Buy with a target price of Rs 123,” the report said.

Current issue represents 20% of the pre-issue paid up capital of PGCIL and thus, the stake of Government of India would come down from 86.4% to 66.4% (dilution of 10%).

The issue closes Friday.

SBI Capital Markets, Goldman Sachs (India), ICICI Securities and J.P. Morgan India are the book running lead managers to the issue.