Nov 09, 2010, 10.12 AM | Source: CNBC-TV18

Retail should subscribe to Power Grid FPO: Udayan

CNBC-TV18's Udayan Mukherjee feels the Power Grid issue has been priced well and should receive good response from investors.

The follow-on public offer (FPO) of India's biggest inter-state transmission company Power Grid Corp has opened for subscription today. A price band for 84,17,68,246 equity shares FPO is set at Rs 85-9 90 a share.

According to CNBC-TV18's Udayan Mukherjee the issue has been priced well and should receive good response from investors. “It was interesting to see that yesterday the stock went to Rs 98 but did not quite close the gap on the FPO price. It may gravitate a bit more but I would be surprised if it closed the entire gap and went down to that Rs 85-90 range and that tells you what people think about what the post FPO completion price will be in the market. My sense is this is a very easy call for retail investors—retail particularly—because they will get the stock at Rs 85. After the FPO is done, unless something dramatic happens in the market, Power Grid will trade into triple digits again in a Rs 100-105 band for sure because that is where it was trading and there is no reason for the stock to trade below that on a fundamental basis.

He further added, “So you buy it at Rs 85-85.50, you get the stock back to Rs 102-103. You are just looking at 20% as an easy gift to retail investors now. You could flip it and take that 52%—better still if you could hold on because the way Power Grid’s business is moving, you could easily one year out justify a price on any valuation parameter at more than Rs 120-125. So, Rs 85 to Rs 125 in a year’s time seems like a very good stretch for a retail investor but even if you are the trading sort, you can take it at Rs 85 and flip it at Rs 102-103 and make your 20% in just about in a month’s time. So whichever way you are oriented, I think it is a very easy call for retail and people should not miss out these opportunities which are being handed to the government. Coal India worked out and I think Power Grid will work out for retail as well. They may not make as much money because it is an FPO but they will make money and it is almost a certain opportunity which they shouldn’t pass up.”

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