The follow-on public offer (FPO) of India's biggest inter-state transmission company Power Grid Corp has opened for subscription.
The follow-on public offer (FPO) of India's biggest inter-state transmission company Power Grid Corp has opened for subscription. Angel Broking has recommended subscribing the issue, in its research report dated November 9, 2010.
The issue will close on November 11 for qualified institutional buyers and November 12 for non-institutional and retail investors. Retail investors and employees will get equity shares at 5% discount to final issue price. Bids can be made for a minimum of 65 equity shares and in multiple of 65 shares thereafter. A price band for 84,17,68,246 equity shares FPO is set at Rs 85-90/share.
The report says, "PGCIL’s tariffs are computed as per the CERC norms, based on which it is eligible for returns on the capitalised assets. The capitalisation of PGCIL’s assets was delayed in the first two years of the Eleventh Plan (Rs 2,000 crore out of Rs 6,000 crore of equity portion in capex was delayed) due to slow execution of the generation projects. However, going ahead, the company’s profits are set to expand with the commissioning of new generation projects gaining momentum. PGCIL capitalised Rs 5,088 crore worth of projects in 1HFY2011 as against Rs 2,440 crore capitalised in 1HFY2010. Moreover, the increase in the RoE ceiling for transmission companies to 16% by CERC for FY2010-14E is expected to lend significant boost to the company’s profitability. The company’s RoE is set to expand from 16.4% in FY2010 to 18.1% in FY2012. The additional RoE of 2.1% over the CERC prescribed rate is due to 1.7% contributed by short-term open access and 0.4% from its consultancy business."
The report also says, "While an investment of Rs 1,40,000 crore has been planned for the transmission sector in Eleventh Plan, the Twelfth Plan envisages higher investment to the tune of Rs 2,40,000 crore. In line with this increasing allocation to the transmission sector, PGCIL plans to add close to Rs 55,000 crore and Rs 1,10,000 crore worth of assets during the Plans, i.e. several times more than Rs 8,500 crore and Rs 18,900 crore invested during the Ninth and Tenth Plans. On the back of the same, over FY2010-12, we expect PGCIL to log 20.1% CAGR in top-line."
"At the upper price band, PGCIL is available at P/BV of 1.7x and P/E of 12.2x on FY2012 estimates. Our fair value works out to Rs 105, implying a Target P/BV multiple of 2.0x. We believe that the issue is well-priced relative to NTPC (RoE’s determined by CERC norms), which is available at P/BV of 2.1x and P/E of 16.9x based on FY2012 estimates. Given the increasing opportunity in the sector, assured return ratios coupled with lower operational risks and attractive valuations, we recommend subscribe to the FPO," according to report.
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