Subscribe to Power Grid FPO at higher band: Aditya Birla Money
Aditya Birla Money is of the view that Power Grid Corporation follow-on public offer is a must subscribe, given the risk-return profile at the issue price.
By ET Bureau |
MUMBAI: Aditya Birla Money is of the view that Power Grid Corporation follow-on public offer is a must subscribe, given the risk-return profile at the issue price.
“Power Grid Corporation 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 1100 billion against Rs 550 billion 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,” the report said.
The pricing of PGCIL’s follow-on public offer has been attractive (Rs 85-90) 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. Post issue, the GOI holding would come down from 86.4% to 69.4%.
“Power Grid Corporation 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 1100 billion against Rs 550 billion 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,” the report said.
The pricing of PGCIL’s follow-on public offer has been attractive (Rs 85-90) 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. Post issue, the GOI holding would come down from 86.4% to 69.4%.
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