Power Grid Corporation of India Limited (PGCL) IPO

[Alchemist]

Power Grid Corporation of India (PGCL) IPO opens on September 10th.

The price band is Rs 44 to Rs 52.

The IPO has around Rs 9 premium in the grey market, which is decent.

I haven't looked at the details, but will do it later.

This one looks like a good one - at least for listing gains. Set aside some capital for it.

[veryfast]

Admin,

as far as company name and fundamentals is concern is good , but look at the size of stock 2525 crore.

And its about 1/4 in size of india's one of latest and biggest IPO DLF .

Dont you think it will create some upper resistance in over-subscription atleast in retail section

[Alchemist]

Originally Posted by veryfast

Admin,

as far as company name and fundamentals is concern is good , but look at the size of stock 2525 crore.

And its about 1/4 in size of india's one of latest and biggest IPO DLF .

Dont you think it will create some upper resistance in over-subscription atleast in retail section

I am not worried much about that. NTPC was a Rs 5300 crore issue. It was subscribed on the first day itself. I expect Power Grid to go the same way. There is more than enough demand for quality IPO issues in the market.

(NTPC wasn't really subscribed much in the retail segment. My brother got an allotment of 268 shares at Rs 62. He is still holding those.)

[g_kab35]

Thankyou Sir. Thanks for early alarm.

[Alchemist]

Power Grid Corporation of India Limited IPO

Opens: September 10th.
Closes: September 13th.

Price band: Rs 44 to Rs 52.

Number of fresh shares offered in the IPO: 382,621,930 (38 crore+).
Number of shares that promoters are selling: 191,310,965 (19 crore+).
Total shares offered in IPO: 573,932,895 (57 crore+)

Number of shares outstanding pre-IPO: 38,262,19,300 (382 crore+).
Number of shares outstanding post-IPO: 42,088,41,230 (420 crore+).

At upper end of the price band the issue size will be Rs 2984 crore.

==================================

Power Grid Corporation is India's biggest power transmission company.

Nearly half of the power generated in India is transmitted by PGCL. Thus it is a sort of monopoly.

Power Grid Corporation was created by the Government of India in 1992 by combining all interstate and inter-regional transmission assets in the country.

Along with its own transmission infrastructure, Power Grid Corporation also has a few power transmission joint ventures with companies like Tata Power (Tala Transmission project) and Torrent (Torrent Powergrid Limited).

On a small scale, Power Grid Corporation also offers consultancy services to power transmission projects in India and abroad.

==================================

Objectives of the IPO:

Most of the proceeds of the IPO will be utilized for the company's transmission projects. 15 different projects will get fresh fund infusions.

The details of the projects can be obtained from the IPO prospectus, which is available here:

http://nseindia.com/content/ipo/ipo_current_pgcil.htm

==================================

The company has been a slow grower. One of the reasons being that the power sector is highly regulated in India. The company's profits are dependent on government policies.

For the last five financial years, Power Grid's total revenues have been:

FY 2003: Rs 2533 crore.
FY 2004: Rs 2806 crore.
FY 2005: Rs 2831 crore.
FY 2006: Rs 3554 crore.
FY 2007: Rs 4082 crore.

(12% CAGR of revenues.)

For the last five financial years, Power Grid's net profits have been:

FY 2003: Rs 627 crore.
FY 2004: Rs 1023 crore.
FY 2005: Rs 830 crore.
FY 2006: Rs 951 crore.
FY 2007: Rs 1088 crore.

(15% CAGR of profits.)

==================================

Based on Post-IPO dilution, the earnings per share (eps) will be Rs 2.59.

At Rs 52 per share, the PE ratio of the company works out to be 20.1.

This looks a bit expensive for such a slow grower like Power Grid Corporation.

For FY 2008 Q1, Power Grid reported revenues of Rs 1051 crore and and a net profit of Rs 454 crore. If the company reports similar profits for remaining three quarters, FY 2008 will have an eps of Rs 4.31.

At Rs 52, the PE ratio would be 12. This is a fair price for a company like Power Grid.

==================================

Power is one sector in which lot of growth is needed in India. If given a free reign, the sector would explode. However I don't think this will happen in the next 10 years.

Power transmission is a sector in which even the PAT (profit-after-tax) margins are controlled by the government.

Strong profit growth with such regulations is not possible. In such a scenario Power Grid Corporation becomes an unattractive business.

==================================

There is Rs 15 premium in the grey market. The IPO has already been subscribed on the first day itself.

There is lot of institutional demand for the stock.

People should subscribe to the issue for listings gains. Also being a big IPO, the chances of allotment are pretty good.

Should one hold after listing?

Yes, if you are looking for a low risk - low return stock for 3-5 years. The company is likely to keep growing at moderate rate. However, the government controlled environment is unlikely to allow strong profit growth. Also the company caries with it the risk of payment defaults by the SEBs (State Electricity Boards). Many of the SEBs are loss making and this may lead to payment defaults in the future.

The positive thing about this company is its monopoly status. This will make sure that the company has enough business in the next 10-20 years to maintain current profitability.

Thus it is a low risk-low return play for long term investors.

Also, it may be picked up by many institutional investors after listing and this may keep the price firm for a few weeks at least.

However, in a growing economy like India, I am sure there are 100s of companies that have better long-term growth prospects than Power Grid Corporation.

I will be a seller on listing.

[vegurudam]

what are the chances of getting allotment in Non Institutional Investors
because upto 12th it subscribed only 49%only.

[Alchemist]

Originally Posted by vegurudam

what are the chances of getting allotment in Non Institutional Investors
because upto 12th it subscribed only 49%only.

Usually Non-Institutional category gets active only on the last day of the IPO.

I would suggest not to apply in this category unless you are applying with a minimum of Rs 7-8 lac.

[vegurudam]

hello sir
what is the position of subscription in retail and in NON Institutional

[Alchemist]

Originally Posted by vegurudam

hello sir
what is the position of subscription in retail and in NON Institutional

Till 12 PM overall subscription was 21.61 times and cut-off subscription was 2.1 times. The retail subscription must be around 2.2 times (cut-off + price bids).

It is not possible to know exact breakup of the subscription figures. The exchanges give the exact break up only at the end of the day.

[veryfast]

Admin,

How much listing gain we can expect from Power Grid .

Issue is crossed 64 times subscription with such a big volumes

will it cross 100 mark on its listing day ?????

[Alchemist]

My guess is Power Grid should list around 80. Tomorrow's grey market price should give a hint about it.

Yes, the extent of over-subscription is quite amazing - especially in the retail segment.

The issue issue had got subscribed around 5.5 times in retail segment till 6 PM.

Now, this means retail applications worth Rs 5685 crore. This figure will go higher in next few hours as more applications are accepted.

Even large issues like DLF IPO and ICICI FPO had not got such a response from the retail investors.

I think till date only Reliance Petroleum IPO, which had got around Rs 11500 crore of applications in the retail segment has got a better response than the Power Grid IPO.

[oceanic]

I have appied for 15 lots.. How much according to you will be allocated to me? What would be the basis of allotment in this case?

Originally Posted by Alchemist

My guess is Power Grid should list around 80. Tomorrow's grey market price should give a hint about it.

Yes, the extent of over-subscription is quite amazing - especially in the retail segment.

The issue issue had got subscribed around 5.5 times in retail segment till 6 PM.

Now, this means retail applications worth Rs 5685 crore. This figure will go higher in next few hours as more applications are accepted.

Even large issues like DLF IPO and ICICI FPO had not got such a response from the retail investors.

I think till date only Reliance Petroleum IPO, which had got around Rs 11500 crore of applications in the retail segment has got a better response than the Power Grid IPO.

[Alchemist]

Originally Posted by veryfast

Admin,

as far as company name and fundamentals is concern is good , but look at the size of stock 2525 crore.

And its about 1/4 in size of india's one of latest and biggest IPO DLF .

Dont you think it will create some upper resistance in over-subscription atleast in retail section

The issue has created a new record for amount of money collected by an IPO.

Total number of shares applied for 37202165375 = approximately Rs 193450 crore collected.

As I said, a quality company doing an IPO at an attractive price, will always find buyers - no matter how big the size.

Even the retail category received 1326381375 applications. This means nearly Rs 6900 crore worth of applications. This is second only to what Reliance Petroluem collected from retail investors from its IPO,

Originally Posted by vegurudam

what are the chances of getting allotment in Non Institutional Investors
because upto 12th it subscribed only 49%only.

The final subscription figures are:

Qualified Institutional Buyers (QIBs): 115.90 times.
Non Institutional Investors: 40.34 times.
Retail Individual Investors (RIIs): 6.76 times.
Employee Reservation: 2.65 times.

As I had mentioned, the NII category got active on the last day. I hope you didn't apply in that category. .

The NII category was subscribed 6 times more than the RII category. Only an application of more than 6 lacs in the NII category will get more shares than a Rs 1 lac application in the retail category.

Originally Posted by oceanic

I have appied for 15 lots.. How much according to you will be allocated to me? What would be the basis of allotment in this case?

The retail segment of Power Grid IPO has been subscribed 6.76 times.

Thus you will get approximately 1875/6.76 = 277 ~ 250 shares.

[stk_chk]

Hi

I have applied for just a single lot since i have very little money to play around with. Does tat over-sub mean tat i would get 125/6.76 i.e. approx 18 shares?? or is it that even that is not guaranteed??

[Alchemist]

Originally Posted by stk_chk

Hi

I have applied for just a single lot since i have very little money to play around with. Does tat over-sub mean tat i would get 125/6.76 i.e. approx 18 shares?? or is it that even that is not guaranteed??

There is a possibility of 1 in 6.75 or 14.8% of you getting 125 shares.

Usually, companies do not make allotments of less than the minimum IPO lot size.

The reason is that if they give few shares to everyone, a lot of profits will be lost in transaction costs.

[stk_chk]

Originally Posted by Alchemist

There is a possibility of 1 in 6.75 or 14.8% of you getting 125 shares.

Usually, companies do not make allotments of less than the minimum IPO lot size.

The reason is that if they give few shares to everyone, a lot of profits will be lost in transaction costs.

Fine. So very minimal chances of getting allotment.

[Alchemist]

Looking at the type of institutional demand that the Power Grid IPO has got, I think it would be better to not sell the stock on listing.

There is good chance that the stock may move to 85+ levels in days after listing.

The IPO was subscribed 115 times in the QIB segment and many of these institutional players will be buyers for the stock after listing.

The price can be expected to remain firm for 2-6 weeks after listing.

[visuwithsmile]

what r the longterm prospects of this company?

Can we expect it to cross Rs 100 in 3 to 4 months?

[Alchemist]

Originally Posted by visuwithsmile

what r the longterm prospects of this company?

Can we expect it to cross Rs 100 in 3 to 4 months?

I really don't like the business prospects of the company. There is too much control by the government.

Just like the government makes the petroleum refineries bleed to keep petrol prices down, it keeps profits of Power Grid down to keep power prices down.

Refinery stocks have actually lost value in last three years because of government policies. I expect this to happen to PGCL too in the long term. It may not give negative returns, but it also will not be able outperform the market.

It may go 90+ in next few months, but I think there are better stocks available in the market than Power Grid Corporation.

[visuwithsmile]

Thnx Alchemist for ur reply.
But I think I would prefer to stay with PGCIL, as PSU stocks have never dissapointed the investors in the long run. We see the performance of all the PSU stocks, they have given excellent results. People who have held them for longterm have always benefited

[kolucoms6]

Visu ,What do you about Engineers India (PSU) ?

I bought it for 925 a year back.. and see now where it is...

[visuwithsmile]

Come on man...........There r always a few exceptions
But here we r talking about PGCIL, which has set a new record in attracting bids.

Cm rating - 53/100 { Capital market rarely gives rating above 50 and its one of the highest ranked in recent times by Capital market }

Any company which has monopoly in the biz , has good demand in markets .

If u r still not conviced, then go through this article:
" powergrid ipo sets new record in Indian ipo History

Mind boggling response to power grid ipo :

Great response to this ipo , the issue got a whooping oversubscription of 65 times approx , which is approx Rs 192,000 crore worth of bids , a new record indeed .

QIB portion o/s by 115 times - it has beaten all records in recent times, even beaten the RPL record .

Read More:

http://iponews.blogspot.com/2007/09/...in-indian.html

[Alchemist]

Originally Posted by visuwithsmile

Come on man...........There r always a few exceptions

Majority of PSUs have underperformed similar Private companies companies.

========================================

Take the example of the banking sector:

SBI
price 10 years ago - Rs 277.
price today - Rs 1760.
535% returns.

ICICI Bank
price 10 years ago - Rs 49.
price today - Rs 967.
1873% returns.

Oriental Bank
price 10 years ago - Rs 65.
price today - Rs 233.
258% returns.

HDFC Bank.
price 10 years ago - Rs 69.
price today - Rs 1326.
1821% returns.

========================================

The profits of power grid went down in FY 2005 compared to FY 2004.

FY 2004 profits : Rs 1023 crore.
FY 2005 profits : Rs 830 crore.

Guess why?

because the government thought 16% ROE margin was too high for power grid and reduced it to 14% ROE on 1st April 2004. The government (via CERC) decides how much profit margin and ROE Power Grid should have.

As I mentioned earlier. just like the government uses the refineries, ONCG and GAIL to keep fuel costs down, government uses Power Grid to keep power costs down. In such an environment, the company will never be able to achieve its full potential.

Other than SAIL and BHEL, I cannot think of any other PSU that has given a notable performance over the last 10 years.

Newer listings like NTPC have done well, but then last three-four years have been years of exceptional economic growth and majority of the companies have done well in this period.

Companies like MTNL and HPCL have actually given negative returns over the last ten years.

========================================

Power Grid will surely grow with the economy, but just like other PSUs its growth will be moderated over the long term because of government policies.

[visuwithsmile]

U r right Alchemist..........but with the kind of demand which is seen for the Power and Infrastructure stocks I think one should stay with Power Stocks for some time(may be 2 to 3 years atleast) to make any SIGNIFICANT GAINS out of it.

What do u say? Waiting eagerly for ur response

regards,
visu

[Alchemist]

Originally Posted by visuwithsmile

U r right Alchemist..........but with the kind of demand which is seen for the Power and Infrastructure stocks I think one should stay with Power Stocks for some time(may be 2 to 3 years atleast) to make any SIGNIFICANT GAINS out of it.

What do u say? Waiting eagerly for ur response

regards,
visu

To buy a stock because there is demand for it, is a folly - at least from an investment point of view.

There was great demand for IT stocks in 1999-2000 and companies' profits were growing at 100%+. People bought these stocks as if there was no tomorrow.

The rest is history.

I am talking not just about stocks that were manipulated by likes of Ketan Parekh, but even stable and growing companies like Wipro, Satyam, HCL Technologies and Polaris have not reached their 2000 highs again.

=========================================

A good company is not a good investment unless you get it at a good price.

=========================================

This is not to say that power or infrastructure stocks are not good investments. I am only saying that one must be careful about ks.what price one pays for these stocks.

Even I agree that infrastructure is the best sector to be for the long term. I would include ports, power, roads, construction (not real estate) and even cement in my list.

This is one sector that is not kept down by demand, but by the supply.

India badly needs investments and growth in infrastructure, to keep the economy on fast track.

=========================================

Coming back to Power Grid, here are some characteristics of its business.

1). No benefit as a monopoly:

This is one thing that investors must keep in mind. Even though, Power Grid has a big share of the power transmission business in India, it can never behave as a true monopoly.

Typically, a company operating in a monopolistic environment, can manipulate prices to suit its needs. This is not possible for Power Grid Corporation. It will always be at the mercy of the government to decide the prices of its services.

The government will always restrict PGCL's profits to keep power costs low.

=========================================

2). Growth held back by Power Shortage:

The company is showing moderate growth for the last few years. The reason is that it can transmit only that much power, which the power companies produce. The power transmission business cannot grow faster than the power generation business.

States like Maharastra and Bihar need power badly, but there is no surplus power.

What will Power Grid transmit for these states? There is demand, but no supply.

=========================================

3). Advantage of Size and being the First-Mover:

The government estimates that inadequate capacity in power infrastructure, shaves off 2 percentage points from India's GDP growth.

If India has to continue growing at the current rapid pace, it will have to fully open its power sector to private sector companies.

Will power sector companies spoil Power Grid's business?

Yes, but that will take a long long time....maybe 10-20 years.

It will be difficult even for the private sector companies to replicate Power Grid's infrastructure.

Thus Power Grid will always get a premium for its replacement cost - it is difficult and costly to build a power transmission infrastructure of the size of PGCL.

=========================================

4). Toll Bridge Type Position:

Toll bridges are good businesses. Whenever, an automobile has to go across a toll bridge, it has to pay a toll. Usually, there is no way to bypass the toll bridge. This gives the toll bridge a steady cash flow - year after year.

Power Grid is in a similar situation. Wherever there is a need for power, power has to be supplied from areas with surplus power. The power supplier and the power consumer have no choice, but to pay Power Grid for its services. Thus Power Grid's business will have steady cash flows for many many years to come.

(Power Grid's most business is from inter-state transmission).

=========================================

Thus from each point we can say:
1). PGCL will never make windfall profits. Do not expect profits to jump 40%-50% every quarter.
2). Growth will be dependent a lot on growth of power generation in India. If the nuclear deal does through, we can expect power situation to improve substantially in next 10-20 years.
3). The company may get a higher PE, in spite of slow growth, because of its size and high replacement cost.
4.). Will have steady cash flows for many years and is comparatively low risk stock. It is unlikely that you will see profits go down sharply for this company.

Thus PGCL will be a low risk stock showing moderate, but steady growth.

[visuwithsmile]

Thanks Alchemist for such an Enlightening Post

E Investing ROCKS

regards
visu

[vegurudam]

is there any allotment news for this stock

[ram]

from which site i can get details of my refund karvy site shows only allotment details. As i want to apply for MAYTAS which is going to close on 4/10/2007 whether i will get refund before 04/10/2007. My city is not covered under ECS/RTGS option and around 2 Lakhs is refundable from PGCIL. To whom i should contact

[Alchemist]

Originally Posted by vegurudam

is there any allotment news for this stock

Check this link:

http://203.199.177.158/kristel/pgcipo.asp

Originally Posted by ram

from which site i can get details of my refund karvy site shows only allotment details. As i want to apply for MAYTAS which is going to close on 4/10/2007 whether i will get refund before 04/10/2007. My city is not covered under ECS/RTGS option and around 2 Lakhs is refundable from PGCIL. To whom i should contact

I don't think you can do much now. It is already 1st now. Even if you get the check today, the amount will not be deposited in your account before 4th.

Tomorrow is Gandhi Jayanti and a national holiday.

(You need to write to the registrar for refund related issues. In this case you will have to contact Karvy).

[kolucoms6]

http://203.199.177.158/kristel/pgcipo.asp gives an error.

[Alchemist]

http://203.199.177.158/kristel/pgcipo.asp

Karvy's servers are down.

Either the above link or this link should work:

http://karisma.karvy.com/jsp/Ipo_Status.jsp

Try later or maybe at night.

[kolucoms6]

My Application number is 13406131

How many I got ?

[Alchemist]

Originally Posted by kolucoms6

My Application number is 13406131

How many I got ?

Are you S.M.C.?

You got 286 shares.

[kolucoms6]

Applied for 2000... :-)

[Alchemist]

Don't sell this stock for next 4 weeks.

There is lot of institutional demand for Power Grid. The stock may touch 100 in coming days.

[kolucoms6]

Wow Alchemist.. thnx a lot..

[veryfast]

As market has enough of liquidity + Power sector is the most chosen sector these time by people + FFI . Tata power up +11 % , Reliance Power is about to come , NTPC playing fireworks ....

I seems that Power Grid will HIT all the doors tomm...

Hoping for the best ... enjoy power grid listing ppls

[kolucoms6]

Originally Posted by Alchemist

Don't sell this stock for next 4 weeks.

There is lot of institutional demand for Power Grid. The stock may touch 100 in coming days.

PGCIL is 109(Highest) as on 5th October...

Allotment at 52 INR..

Holdback for next 4 week still ? as It already crossed 100...

[Alchemist]

Originally Posted by kolucoms6

PGCIL is 109(Highest) as on 5th October...

Allotment at 52 INR..

Holdback for next 4 week still ? as It already crossed 100...

Sell half and free your initial capital.

Momentum may take it a little higher.

However, I don't see much value at 100+ levels. The stock already is at 40+ PE ratio.

[g_kab35]

hello sir.
thanks for ur early alarm. i just doubled my invested money at first day itself.
now everybody says this is a good stock. so one may buy this for its short to medium term portfolio? is it worth to buy at 100+ level, or shld wait for correction?
(some experts expects 80-85 range of this stock after correction.)
ur views are highly appreciated.
thanks.