PGCIL FPO Review

Power Grid Corporation of India Ltd. (PGCIL) FPO Review

Issue Highlights

Issue Period	3/12/2013-5/12/2013  (6/12/13 for retail investors)
Issue Type	Book Building
Price Range	Rs. 85-90
Face value	Rs. 10
Market Lot	150 shares
Issue Size	78,70,53,309 equity shares
Listing	BSE,NSE
Registrar	Karvy Computershare
Retail Discount	5% discount on the issue price
Industry	Electricity Transmission & Telecom
Equity Shares after the offer	5,23,15,89,648 equity shares

The offer

Fresh Issue: 60, 18, 64,295 shares

Offer for sale by govt.: 18, 51, 89, 014 shares

Company Profile

PGCIL is India’s principal electricity power transmission company which generates its revenue through tariffs charged for facilitating power transmission from power producers to the distribution network or end users. As on September 30, 2013 PGCIL operated around 90 % of India’s power transmission business with 86 ongoing transmission projects in various stages of implementation. PGCIL has been conferred a Navaratna status in the year 2008.The company is also involved in the consultancy business. Besides electricity transmission, PGCIL is also involved in telecommunication bandwidth business.

Strengths

    1.       The company holds a leadership position in country’s power transmission sector with around .102 million circuit kilometres of transmission lines.

    2.       High operational efficiencies and effective project implementation

Concerns

1.       Electricity transmission tariffs are on a cost-plus basis and the same is regulated by CERC. Adverse CERC policies could harm the profitability of the company.

2.       Telecom tariffs are regulated by TRAI.

3.       A major chunk of revenues is derived from state power Utilities (SPU) with weak credit histories.

Objects of the offer

    1. The govt. disinvesting 18, 51,89,014 equity shares of face value Rs. 10 at the issue price. This amount shall not go with the company.

    2. The proceeds received from the fresh issue shall be used for the implementation of certain identified transmission projects.

    3.  For general corporate purposes and issue expenses

Financial Analysis #

# All calculations at the upper end of the price band

# post issue equity used in the calculation

Parameter	FY14 Annualized	FY 13
Basic EPS	Rs. 8.7	Rs. 8.1
Book Value	Rs.54.4	Rs. 50.1
P/E	10.3	11.1
P/B	1.7	1.8
NPM	29%	32%
Profit CAGR(2 years)	18%	NA
PEG	.6	NA
Debt/Equity(exhaustive)	3.3	3.09
ROE	16%	16.2%
EV/EBITDA	7.18	8.058
Current Ratio	.5	.4
M-Cap/Sales	3	3.5

The Analysis

Though PGCIL is the leading electricity power transmission company of the nation but its revenues are strictly controlled by the government of India and CERC.

Policy flip-flops and populist measures by the government have always been a nightmare for this Navaratna company. Besides, ailing state electricity boards with poor credit history are really a concern. Financial are satisfactory but the profitability is restricted. There is no comparable peer but the average industrial Price to Earnings Ratio is 11 and Rs. 89 can be termed as a fair price.

The stock traded in a trading range in the past few years

What makes this issue interesting for me is the retail discount of 5 % which makes the upper price for retail investors as Rs. 85.5 while the LTP in the secondary market is Rs. 95.1.
This scrip has seen a strong support at Rs. 92 in past the few years.

I think, if this difference of Rs. 9.6 persists till the last day of this issue and overall market remains still, then I should apply for this issue at the cut-off price.

My sole aim will be to gain the listing gains.