Power Grid Corporation of India is coming out with a 100% book building; Follow up on Public Offer (FPO) of 841,768,246 equity shares of Rs 10 each in a price band Rs 85-90 per equity share. Up to 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), 15% would be available for the non-institutional bidders and the remaining 35% for the retail investors. The issue will be open from November 9, 2010 to November 11, 2010 for QIB bidders and November 12, 2010 for all other bidders. The face value of the share is Rs 10 and is priced 8.5 times of its face value on the lower side and 9 times on the higher side.
Company Profile:
Power Grid Corporation of India is India's principal electric power transmission company. It owns and operates more than 95% of India's interstate and inter-regional electric power transmission system. The company is ranked as the world's third largest transmission utility by the World Bank in January 2009.
It has been conferred the status of 'Navratna' by the Government of India (GoI) in May 2008, which provides it with greater autonomy to undertake new projects without GoI approval and also allowed them to make investments in subsidiaries and joint ventures, subject to an investment ceiling set by the GoI.
Objective of the issue:
The company is looking forward to raise around USD 1.7 billion through the FPO. The proceeds will be used for implementing 13 transmission projects costing Rs 22,600 crore.
Outlook:
The scrips are being offered in a price band of Rs 85-90, based on the fiscal 2010 EPS of 4.85, the P/E stands at 17.53x at the lower price band while it stands at 18.56x at the higher price band. The issue would result in reduction of the government stake to 69.4% from 86.4%. For the Q2FY11, the company's sales grew by 25% and profit by 42% and the company is likely to maintain profit growth rate in coming years as well. Moreover, the company has an edge with no other listed company into transmission business.
Valuations:
The issue has been attractively priced with a discount of 5%. The stock with a current price of Rs. 98 is trading at 15.1xFY12e EPS. We recommend a BUY on the scrip with a target of Rs. 115 (17.8xFY12e EPS).
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