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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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