Indian IPO

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Friday, September 14, 2007

Power Grid IPO gets record Rs 1,90,000-cr bids

In the biggest-ever response to a public stock offering, the state-owned Power Grid Corporation of India (PGCIL ) has received subscription of Rs 1,90,000 crore, a slice of which came from provident and retirement funds — investors who rarely put money into equity. The company will raise around Rs 2,985 crore through the IPO, which has been oversubscribed 65 times. Investors were offered a price band of Rs 44 to 52 for building the book.

Some of the retirement funds that have put in subscriptions are employee funds of Canara Bank, Oriental Bank and several state electricity board funds.

While PFs are still awaiting the labour ministry’s approval to invest in stocks, bank provident funds, which are not directly under the ministry, can invest in equity. However, other retirements funds like supperannuation (SA) and gratuity funds of all organisations are free to invest in stocks within the permissible limit of 5% of fresh inflow.

Power Grid handles the transmission of as much as 45% of the power generated in India, making it the largest player in the sector.

The lead managers to the IPO are Kotak Mahindra Capital, Citigroup and Enam Securities. “The quality of paper coming out of PSUs is getting more investors . This augurs well for the government in its selective disinvestment programme and from future IPOs by PSUs,” said Kotak Securities vice-president (research) Ketan Karani.

PGCIL received bids for 3,700.54 crore shares against 57.39 crore shares on offer. The QIB portion of the issue alone is said to have been subscribed almost 115 times, which works out to Rs 1.64 lakh crore. Of this, sources said that 41% was garnered by Enam Securities, 30% by Citigroup and 28-odd % by Kotak Mahindra Capital. Retail is said to have been subscribed over five times while the HNI portion was subscribed almost 41 times. Even the employees’ quota of the offering has been subscribed over 2 times.

“This goes to reiterate the investor confidence in the Indian power sector story,” said Enam Securities head of broking Dharmesh Mehta.

Most brokerages in their reports have recommended clients to subscribe to the issue. They have underscored factors like high revenue visibility, significant ramp up in transmission capacity, superior design and engineering capabilities and low operational risks, among others. Incidentally, some of the brokerages have advised clients to subscribe at the higher end of the price band.

“With an EPS of Rs 2.9 for FY07, it is priced at a PE of 17.9 times on the higher end of the price band and 15.2 times at the lower end of the price band,” said the ASK Securities report. “We recommend investors subscribe at the higher end of the band (Rs 52),” it said.

India Infoline has advised investors to subscribe with a one-year horizon. “The government’s plans to increase capacity on the generation side will definitely trigger a huge demand for transmission. Coupled with this, PGCIL’s Rs 12,700-crore capacity addition plans over the next couple of years provide visibility for revenues going forward,” it said.


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