REC FPO opens; should you subscribe?

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REC FPO opens; should you subscribe?

The follow-on public offer (FPO) of Rural Electrification Corporation (REC) has opened for subscription. Experts were mixed in their opinion while brokerage houses said the issue looked attractive and advised subscribing the issue.

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The follow-on public offer (FPO) of Rural Electrification Corporation (REC) has opened for subscription. The floor price for 171,732,000 shares FPO is fixed at Rs 203 per share.

The offer of the state-run finance provider for power projects will close for subscription on February 23, 2010.

Experts were mixed in their opinion while brokerage houses said the issue looked attractive and advised subscribing to the issue.

Investment Advisor, SP Tulsian said, "For the past three quarters of the current fiscal, REC's growth has been flat. Its EPS for all the three quarters have been in a range of Rs 5.50 to Rs 5.76 and since Q1FY10, the annualized EPS has remained stagnant at Rs 22. If we saw a vision of EPS of Rs 22 at the beginning of FY10, we see the same estimates even today. So if we talk about growth, it is missing sequentially in FY10. Its book value currently stands at Rs 90 and Price to Book Value at issue price of Rs 203, is at 2.25. Even PE multiple of over 9 times at issue price is not leaving much room to rise, going ahead."

Manish Bhatt of Prabhudas Lilladher says, REC looks to be good. One can apply to the issue at floor price with one-year horizon.

Brokerages views

Aditya Birla Money says, "At the floor price of Rs 203, the company is trading at a PE of 9.53x on its TTM earnings and 14.46x on its FY09 earnings. By considering the factors such as : being the alone rural power finance company, consistence financial performance & growing power demand, the issue price looks attractive. So, we recommend subscribe on the issue for long-term perspective."