Power Grid Corporation’s FPO @ Rs. 85-90 – December 2013

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Power Grid Corporation of India Limited (PGCIL), a ‘Navratna’ company and the Central Transmission Utility (CTU) of the country, is coming out with its second follow-on public offer (FPO). The issue will open for subscription today, December 3 and will get closed for the institutional investors on December 5 and for all other investors, including the retail investors and its employees on December 6.

Price Band & 5% Discount – The company has set the price band between Rs. 85 to Rs. 90 and has also decided to offer a 5% discount to the retail investors and the employees of the company. If the price gets fixed at Rs. 90, the retail investors will get the shares at Rs. 85.50 per share.

Lot Size, Minimum & Maximum Investment – With a lot size of 150 shares and the offer price of Rs. 85.50 per share, minimum investment required stands at Rs. 12,825. A retail investor may apply for a maximum of 2,250 shares in the offer i.e. a maximum investment of Rs. 1,92,375.

Shares on Offer – The company is going to issue about 78.71 crore shares in the offer, constituting 17% of the company’s existing paid up capital. This comprises a fresh issue of 60.19 crore shares and simultaneous disinvestment of 18.52 crore shares by the Government of India. After the stake sale, the Government’s holding in PowerGrid will come down to 57.89% from the current 69.42%.

35% Issue Reserved for Retail Investors – There are three categories of investors – Qualified Institutional Bidders (QIBs), Non-Institutional Bidders (NIBs) and the retail investors. 50% of the issue is reserved for the QIBs, 15% for the NIBs and the remaining 35% for the retail investors. 30 lakh shares have been reserved for the employees of the company.

Historical Price Movement – Power Grid launched its IPO in October 2007 and its first FPO in November 2010. Price band set for the current FPO is absolutely same as it was offered in its first FPO. Since then, its price has been moving in a limited range, touching a high of Rs. 124.70 and a low of Rs. 86.55.

But, during most of this time period, it has remained in a very tight price range of Rs. 95 to Rs. 115. During the same time, the fundamentals of the company never deteriorated, as it has been the case with many other public sector enterprises.

This FPO has been an overhang on the company’s price movement in the recent past. Despite a good performance and improved profitability shown by the company, its price has fallen from Rs. 110-115 to Rs. 93-98 in the last few months.

The company is to invest Rs. 30,000 crore in the 12th Plan and this FPO would help the company to partially fund its ongoing projects.

Power Grid is a defensive stock to buy in the power sector with extremely attractive valuations. Net Profit of the company grew at 22% compounded annually between financial years 2007-08 and 2012-13. At the current price of Rs 93.60, the stock trades at 10.05 times its trailing twelve months earnings per share and 1.64 times its book value.

I think the offer price of the company in the FPO @ Rs. 85.50 is extremely attractive and has the potential to provide around 30-50% returns in the next one to two years time frame. Personally, I’ll subscribe to the issue and advise my clients as well to invest in this offer.

106 thoughts on “Power Grid Corporation’s FPO @ Rs. 85-90 – December 2013”

  1. Any views on the upcoming “WONDERLA HOLIDAYS LTD : WONHOL” ipo? opening 21st April…worth a buy ? I personally have visited their park in bangalore and was quite impressed with cleanliness and quality of the park/rides…

  2. Dear Sir can you expalin sale of stock of PGCIL is not done through offer for Sale window though i always prefer FPO

      1. Sir i want to know in which cases OFS(Offer for sale ) is applicable. Govt of India off loaded their stake in companies like hindustan copper(2 times),ONGC, SAIL etc through OFS window and why GOI had chosen FPO in powergrid for their stake sale

          1. i go through it but still one doubt. In stead of FPO, can GOI sale these huge amount of stake through OFS or whether any limit is imposed on OFS.I think so ,thats why Govt took the FPO path instead of OFS

  3. Hi Shiv! I have a question about taxation.

    I have 100 shares of power grid which I have been holding for 2 years. Lets assume I get allotted another 100 shares in this FPO.

    Now I sell 100 shares of Power grid after 3 months and continue to hold the other 100. Will this be LTCG or STCG? If its STCG, will it be taxed @ 15% or as per applicable slab rate?

  4. Final Subscription Figures of Power Grid FPO on December 6:

    Category I – 356.23 crore shares as against 39.20 crore shares reserved – 9.09 times subscribed
    Category II – 114 crore shares as against 11.76 crore shares reserved – 9.70 times subscribed
    Category III – 59.5 crore shares as against 27.44 crore shares reserved – 2.17 times subscribed
    Category IV – Rs. 39.3 lakh shares as against 30 lakh shares reserved – 1.31 times subscribed
    Total Subscription – 530.13 crore shares as against 78.71 crore shares on offer – 6.74 times subscribed

    Approximate No. of Bids – 389,142

  5. Respected Sir,

    Can you tell me when will be the shares allotted and how much I will get ? I am a very small investor and have applied for 150 shares. Is it true that company is planning to distribute dividend in coming 1-2 months?

    Thank You.

  6. Dear Shiv,

    I could not cancel/modify my bid and it was confirmed by tele-executive of HDFC securities. As she says this is the norm for any FPO.

    1. Dear Debasis,

      You can very well modify/cancel your online bid(s) for any/all of your IPO/FPO application(s). If the tele-executive says that you cannot modify or cancel your bid application, he/she is absolutely incorrect to state that.

      It is possible that you’ve surpassed the time limit to modify the application. It is allowed till 1 p.m. with my Kotak Securities and Edelweiss Trading A/cs. Not sure about HDFC Securities.

  7. Dear Shiv,

    Can you tell me the allocation date of FPO. When it will be available to my account. And when i can do the buy/sell transaction. Actually i dont know much about FPOs. So i am asking these kind of question. Thanks in advance.

  8. hi Shiv – if I apply for Powergrid FPO from 2 different trading accounts for full limit of 1.92 lakhs in each of them, will they check for duplicate applications… on PAN no or some other basis? Do I risk not getting any allotment for applying twice? I am sure people are applying from different accounts multiple times.. my question is is that really checked by the registrar while allocating shares?

    1. Hi Sam,

      If you do that, your applications are liable to be rejected. These applications get tracked by the First/Sole applicant’s PAN number and multiple applications by the same applicant are liable to get rejected.

  9. Day 3 (December 5) subscription figures:

    Category I – 356.23 crore shares as against 39.20 crore shares reserved – 9.09 times subscribed
    Category II – 1.44 crore shares as against 11.76 crore shares reserved – 0.12 times subscribed
    Category III – 17.92 crore shares as against 27.44 crore shares reserved – 0.65 times subscribed
    Category IV – Rs. 14.45 lakh shares as against 30 lakh shares reserved – 0.48 times subscribed
    Total Subscription – 375.74 crore shares as against 78.71 crore shares on offer – 4.77 times subscribed

        1. Sorry, slight date confusion on my part. I thought yesterday was last day for subscription and did not realize it was actually today. Will watch out for today’s subscription !! Hope retail quota is not over subscribed !

  10. Dear Shiv,

    I applied for 1200 shares via my HDFC Securities account. I have put bid price as Rs. 90 but did not check the cut-off price box.

    What could be the impact on allocation?

    1. Hi Debasis,

      There will not be any impact on allocation. If the “Cut-Off” price is fixed at Rs. 90, you will be treated at par with other investors opting for “Cut-Off” option. If it is set below Rs. 90, then you’ll be allotted shares for sure, but at Rs. 90 less retail discount of Rs. 4.50. But, most likely, it will be fixed at Rs. 90. So, you should consider yourself to be a part of other investors.

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