Power Grid FPO 2013 – Apply

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FPO Update 11th Dec

  • The FPO closed finally with 6.74 times subscription. Of this, Retail was 2.17 X, QIB 9.09 X and HNI 9.7 X.
  • So Retail applicants should get 40-60% of their applied shares.
  • The pricing declared in this FPO was Rs 90, at the upper end of the range. Thus the FPO has been a success, and has raised about Rs 7000 crores.
  • This success indicates a mood change in the market. Certainly many firms will now approach the market with IPO/FPO offerings. Also its obvious that institutions and HNIs are participating/ investing more than Retail.
  • Time for the rise of Indian Retail?

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FPO Analysis

  • Published on: Dec 6, 2013 @ 11:39
  • Pricing: Rs 85-90 range
  • Issue Period:  3-6 Dec 2013 
  • Retail gets an additional 5% discount

Positives:

1) a PSU semi monopoly for power transmission
2) guaranteed returns on assets; predictable income and cash flow
3) over 15% year to date fall in share price makes this share a better value purchase today
4) plays a critical nation building role by developing the power trans capacity and control.
5) by yesterday FPO was already 4.8 times oversubscribed with qib portion 9 times oversubscribed. Retail is likely to get a good fraction of his application in the allotment.
6) retail gets 5% discount on price.

Negatives:

1) very high debt and D/E is over 2.4
2) government dominated sector with sale prices, returns and most costs all controlled. So out performance is difficult.
3) massive asset play. Essentially pgcil gets a return on massive transmission grid assets.
4) likely to continue to approach market for FPO every 2-3 years, resulting in earnings dilution, in order to continue current mission.

Opinion:

  • Current FPO is a good 12 months investment with a 20% return target.
  • Not recommended for long term > 2 year holding.
  • Apply at cut off.

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One thought on “Power Grid FPO 2013 – Apply

  1. JainMatrix says:

    Reblogged this on JainMatrix Investments and commented:

    Update Jan 01 2014
    The PGCIL FPO and subsequent price action has so far rolled out in expected fashion. Retail investors who followed the buy recommendation at FPO, and applied for the maximum shares at Cut-off would have received 1029 shares (after applying for 2250) at Rs 85.5 . This translates to a gain of Rs 14,400 at todays CMP of 99.5. A gain of 16.4% so far, in just a month of investing.
    What should you do now?
    The market and the share looks good so far, so hold on if you can for more gains.

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