Power Grid Corporation’s FPO Issue: Should You Subscribe?
After a significant interval, the government has stepped up its moves to make up for the deficit in its disinvestment target. In the first of this renewed effort, Power Grid Corporation of India (PGCIL) is coming out with a Follow-on Public Offer (FPO). This is also the first fresh issue in the market in a long while.
PGCIL is offering 78,70,53,309 equity shares of the company of face value Rs 10 per share, which is 17 per cent of its existing paid-up-equity capital. The FPO constitutes both fresh issue and offer for sale of 60,18,64,295 and 18,51,89,014 equity shares respectively.
As per the company's shareholding pattern on September 30, 2013, the Central Government currently holds 69.42% stake in PGCIL. Following the FPO, the government’s stake will reduce to 65.42%.
On the financial front, PGCIL posted a growth of 26% to touch Rs 41.04 crore in revenues on a YoY basis during September quarter FY14. Its bottomline also saw a jump of 10% in the quarter to come in at Rs 1239.20 crore.
The purpose of the issue is to generate funds for the company’s transmission projects, as also dilution of the Central Government's stake. Considering the issue price band, the offer would probably raise an amount in the range of Rs 6689.95 crore-7083.48 crore. The net proceeds would be used for capital requirement, which will be further invested in implementation of projects identified by the company.
Currently, PCGIL’s shares are trading at a price-to-earnings multiple of 9.5x its TTM EPS of Rs 9.76. The quoted a price band is at a discount of Rs 8.40 from today's closing market price of Rs 93.40. With the offered issue price, the company's PE multiple stands between 10.77x-10.42x, which is lower than the industry PE. Considering the discounted issue price and the lower valuations compared to the industry price-to-earning multiple, we advise investors to subscribe to the issue for a long-term horizon.