The Coal India OFS mega share sale

Dear Investors,

  • Business Standard has an excellent article on the Coal India OFS – Offer for Sale.
  • This OFS is for one day only, tomorrow, Friday 30th Jan
  • I have not researched this investment idea yet, but its a very big offering, and has moved very quickly from plan to execution.
  • But investors need to be aware of this, so here’s the newspaper article, do read
  • Coal India OFS from Business Standard

Regards,

Punit Jain

 

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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Sparkling Power Finance Corp FPO – May 10-13

Update on late May 12th!

  • PFC FPO got over subscribed 3.6 times on Thursday.
  • While the FII portion was subscribed a healthy 6.9 times, the HNI (0.01 times) and Retail (0.34 times) subscribers are waiting for the last day. This indicates a likely surge tomorrow in the latter two categories.
  • The maximum subscription amount for Retail is Rs 2,00,000. For Retail, if you want to maximise your subscription, bid for 1064 (28X38) shares at Cut Off (could be as low as 183.35) for an investment of Rs 1,95,084
  • Good luck !!

FPO Note – May 10th

Power Finance Corp is a power sector PSU available at attractive valuations. Demand in the sector remains robust. Subscribe to the FPO.

Power Demand:

  • The Indian power generation sector faces huge demand growth. See graph (we are in 11th Plan now)
  • Plan vs Achievement has been as low as 51.5% in the 10th Plan
  • The shortfall of peak power has been 8-12% in the last decade.
  • Over 40% of Indian population still don’t have access to electricity
Power Finance Corp - FPO

Capacity addition – Power

Power Finance Corp  – Description and Profile

  • PFC is a firm that funds and stimulates power generation capacity in India. It is a Navaratna PSU registered as a NBFC with ‘Infrastructure Finance Company’ status.
  • PFC has a market share of about 20% in the Indian power lending industry, across all entities, NBFCs/ Banks, private/ public, and Indian/ MNCs.
  • PFC lends to a number of power generation firms, and is a nodal agency for Ultra Mega Power Projects (UMPPs), and the R-APDRP program (Restructured Accelerated Power Development and Reform Program), and for  other government driven power initiatives
  • It also lends to related sectors like Transmission Projects and Distribution, and runs the DRUM program (Distribution Reforms, Upgrades & Management).

PFC Stock evaluation, performance and returns

  • PFC first got listed in a Jan 2007 IPO, and got oversubscribed by 75 times; and the IPO price was set at Rs 85.
  • Investors in the Jan 2007 IPO of PFC have earned a 22% CAGR return to date
Power Finance Corp - FPO

PFC investor Returns

  • PFC has certainly outperformed the NIFTY since it’s IPO.
Power finance Corp - FPO

PFC has outperformed the Nifty

  • Key financial metrics of PFC are showing a steady uptrend
Power Finance Corp - FPO

PFC – financial snapshot

  • Quarterly profits are showing steady growth (except the last quarter)
Power Finance Corp - FPO

PFC – Income and Profits

Lending to Power sector

  • PFC is a nodal agency to facilitate implementation of Ultra Mega Power Projects; these have a capacity of 4,000 MW. PFC charges consultation fee of Rs 15 crores for accomplishing the legal approvals and consultation for a UMPP, thus acting as a one-stop solution provider.
  • The Ministry of Power, Govt. of India has launched the Restructured Accelerated Power Development and Reform Program (RAPDRP) in July 2008 with focus on establishment of base line data and fixation of accountability, and reduction of AT&C losses through strengthening and up-gradation of transmission and distribution network and adoption of information technology during XI plan.
Power Finance Corp - FPO

PFC – Asset and Borrower profiles

  • On the Assets side, PFC is primarily into Generation; the borrowers are mostly State Government bodies
  • PFC is allowed to raise tax-free retail bonds; this has allowed it access to lower cost capital.
  • PFC’s loan book grew at an annualized rate of 22.8 per cent over the period FY06 – FY11
  • PFC is also analyzing entry into funding for Nuclear Power plants.

FPO Offer:

  • The price band is fixed between Rs 193 – 203 per equity share. The offer will be open from May 10-13.
  • Retail investors are offered a discount of 5 per cent in the issue price
  • The IPO will raise funds of Rs 4400 – 4,700 crores at the lower and upper ends of the price band.
  • The follow-on public offer (FPO) comprises a fresh issue of 17.21 crore equity shares by the company and an offer for sale of 5.73 crore equity shares by the Government of India. Currently Government holds 89%. The FPO would result into equity dilution of 14.99%.
  • The purpose of the IPO is to
  • Help PFC keep capital adequacy ratio at 15% over the next few years – it has fallen to 16% now after the lending operations of this year.
  • Strengthen the Balance sheet
  • At the upper end of FPO pricing, of Rs 203,
  • P/E will be 8.9 times (Industry average is 12.2)
  • P/B will be 1.88 times
  • Dividend rate will be 2.2% – fair returns, and note that dividend payout will continue to increase
  • Note that Retail may be allotted at 5% below 193 – that makes it quite attractive.

Risks:

  • Power generation project execution: This was the primary risk a few years ago, with delays and technology challenges. But of late with the opening up to the Private sector, the execution capabilities are improving
  • Power generation operations – Electricity payments from SEBs. The State Electricity Boards – SEBs cash losses have risen from Rs 6,500 crores in 2006-07 to Rs 28,400 crores in 2008-09. This may affect the payments to electricity plants, which in turn can affect PFC. However SEBs are undergoing restructuring in the States, and these should emerge stronger over the next few years
  • Power generation operations – Fuel supply linkages
  • Most power generation projects have Coal as fuel. Coal is generally supplied by Coal India Ltd. – which has not been able to meet production targets in recent quarters.
  • There have also been supply chain issues with coal – such as inability of Indian Railways to handle transportation.
  • Coal is also being supplied from Australia. This supply got affected recently due to floods there.
  • The fuel supply risks are being addressed in new projects by long term commitments from suppliers for new power generation projects.
  • While PFC’s gross and net NPAs have remained negligible in the last five years, defaults – it does not make provisions for loans turning bad – and higher credit costs could impact its balance sheet and earnings.

Opinion, Outlook and Recommendation

  •  India is a power deficit country and the current growth path will require continued capacity additions and efficiency improvements for foreseeable future.
  • PFC will see it’s role expanding for facilitating and funding power sector projects
  • PFC is another monopoly PSU and will execute on government objectives, in an assured returns environment.
  • The Indian government continues to offer PSUs at attractive valuations in public offerings
  • PFC can be a Core holding in the Core – Satellite portfolio for investors.
  • The current FPO offer is at 52 week low of market price. The fall in share price by 45% from the Oct 2010 peak has made current valuations attractive. This reduces the risk of the asset at this price.
  • Watch for subscription data till May 12th to get a better idea of allotments – or even better, check back on this website www.jainmatrix.com for updates :-)
  • Do you find this report useful? Please comment below. You can also subscribe for my posts by filling the ‘Sign me up’ box on top right of this page.

Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

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Performancing Metrics

IPO round up – 15th Dec

Punjab and Sind Bank IPO – Last day

  • The subscription for P&S Bank on 15th was QIB 50 times, HNI 23 times and Retail 8.4 times – huge over subscription !!
  • Retail can easily go up tomorrow to 25-30 times – sounds like a repeat of MOIL in terms of over subscription
  • The offer is of course attractive, but in the IPO format, too high interest means smaller allotment, reducing the returns from the offering.
  • Good luck with your investment !
  • Also see Analysis of this IPO – click link

MOIL listing

  • the share exploded off on listing today to peak at 591 – a premium of 58%
  • However, it was downhill thereafter, as the overall market negativity dragged it down
  • With markets expected to be dull for a while, heading into the year end, I’m not sure if we will see a new high very quickly in MOIL
  • Also see analysis of MOIL IPO

SCI FPO

  • SCI saw some weakness, with market prices falling below even the discounted Retail pricing.
  • I expect a few dull days before the stock gathers strength again – it has to reverse the direction.
  • Also see analysis of SCI FPO – click Link

SCI FPO analysis – closing review on 6th Dec

  • The FPO price fixed today is Rs 140 – high end of range
  • The Retail and HNI subscriptions piled up on the last day of FPO and surprised on the upside. Retail is 6.5 times over and HNI 3.7
  • Seeing the numbers retail investor can at max expect around 240 shares worth Rs. 31-33,000. Quite smaller allocation than our pre- FPO expectations
  • Retail over-subscription was more than HNI – this is a new trend.
  • Employee quota was very small and under subscribed, this may move to retail.
  • General market directions look positive, and I expect the price will rise slowly after FPO shares are allotted.
  • After this very successful FPO, SCI has promptly announced $3 billion worth of capital investments over the next 3 years. This will double the gross tonnage over next 7 years. Positive signs indeed !!

Also see Analysis of SCI FPO (click link)

Power Grid FPO – Nov 2010


While all analysts and reporters are talking endlessly about Power Grid FPO in the shadow of the Coal India IPO, see link,
http://economictimes.indiatimes.com/quickiearticleshow/6893599.cms

I wonder if anyone has given thought to the risks around this offer :
· High Debt – at around 37k crores (March 2010), debt is high. The D/E ratio is 2.18. And one of the purposes of this FPO is to raise additional equity and reduce the D/E ratio, and at a later stage, also raising additional Debt. Much of the debt is from low cost funding agencies. However it has to be repaid eventually, right?
· Dilution of Equity – dilution of 10% by fresh issue available and being offered in this FPO. This means that EPS will fall proportionately, so a Rs 105 stock (at constant PE and earnings) should fall to 94.5 Rs post FPO.
· Underperformance of stock compared to Sensex – see graphic attached. Over last 2 years, PGCIL has underperformed the Sensex.


· Limited upside – Returns are capped; performance of PGCIL depends on energy generation by power plants, and there have been delays in commissioning of power gen plants.
· Past year has seen a go slow in awarding of projects for setting up transmission lines (I own KEC International, a downstream EPC firm. Thats another story).
Comparisons with Coal India are difficult to defend, even though there is a public sector monopoly –
· This is a highly capital intensive sector
· Derived Demand – PGCIL revenues are derived from the performance of power generation plants.
I would say a more balanced view is required.
· FPO is 10 times oversubscribed yesterday – this is a good sign.
· Expectations are that several projects of this company will be commissioned in the next few months, this will drive up revenues and profits
Personally I would like to nibble at this FPO, rather than take a large bite. If you have a Core and Satellite portfolio, this can be a small, defensive, market performer holding.