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.