Power Grid Corporation has a number of good things going for it on the eve of its Follow On Public Offer (FPO) slated to open on 9th November 2010.
Power Grid is the largest transmission utility of India carrying about 50% of the total power generated in the country. Power Grid is a Navratna company and has carried on consultancy services in Bhutan, Afghanistan and Bangladesh. Power Grid‘s turnover in FY 2009-10 was Rs 7503 crores while Power Grid‘s net profits stood at Rs 2040 crores. Power Grid‘s sources of revenue are mainly from transmission (88%) and partly from consultancy (3.5%) and telecom business (2.5%).
Power Grid‘s 3 Yr CAGR Sales have grown at 25.69% while Power Grid‘s 3 Yr CAGR Profit has grown at 19.84%. Power Grid‘s Net Profit Margin is 28.63% while its’ Return on Equity is 13.17%. Power Grid‘s EPS in FY 2010 was Rs. 4.85.
Power Grid announced strong Q2 FY 2011 results. Power Grid‘s net profit was Rs 651 crores for the September 2010 Quarter as against Rs 460 crores in the corresponding quarter of FY 2010 reflecting a healthy growth of 41.52% on year-on-year basis (YoY). Power Grid‘s total revenue spurted 25.04% to Rs 2,127 crores from Rs 1,701 crores on a YoY basis. Power Grid‘s trailing 12-month (TTM) EPS was Rs 5.22 per share. Power Grid‘s Price to Earnings (P/E) ratio stands at about 20. Power Grid‘s book value stood at Rs 37.88 per share while its price-to-book value stands at a reasonable 2.75.
Power Grid’s Quaterly Performance
Power Grid‘s Projects commissioned in H1 FY11 stood at Rs 5088 crores compared to Rs 2440 crores in FY 2010. Further, Power Grid has capex plans of Rs 12900 crores for FY 2010-11. Power Grid‘s Capex plans for FY12 is Rs 16700 crores. Power Grid‘s capex cycle runs over 2-3 years with the result that the capex incurred in FY09 will capitalize in FY11 and start generating revenue.
Power Grid‘s transmission business is expected to witness significant jump in FY 11-12 in a bid to meet its 11th Plan targets. Power Grid has planned to add at least 40,000 MW in FY11-12. Power Grid has added 22000 MW between FY08-10 out of the total target of 78000 MW. Power Grid expects to spend about Rs 29,700 crore (54%) out of the total targeted capex of Rs 55,000 crore (11th Plan target) by the end of FY12. Power Grid has also indicated that it will have a capex of about Rs 1, 00,000 crores for 12th Plan to meet the requirements of private generation projects worth 48000mw and 4-6 incremental ultra-mega power projects.
In addition to the transmission business, Power Grid‘s other segments of consultancy and telecom business which presently contribute 3.5% and 2.5% only have a lot of potential. Power Grid has indicated that it will diversify its consultancy business to countries such as Oman, Nigeria, Kenya and Myanmar and also use its transmission towers in forest or remote areas as telecom towers and earn rental.
The result is that Power Grid has high revenue visibility over the several future years and this always provides comfort to any investor.
Power Grid‘s Follow-on Offer (FPO) will constitute a fresh issue of 10 per cent equity shares and a sale of the Government’s 10 per cent stake of its 86.36 per cent stake of shares in Power Grid. Power Grid will offer comprises over 84 crores (84,17,68,246) equity shares of Rs 10 each constituting 20 per cent of existing paid-up capital.
Power Grid‘s FPO pricing has not been announced so far. However, Power Grid‘s FPO is likely to be priced at an attractive discount to the market price of Rs. 105 of its shares.
Power Grid is the ideal investment for the patient investor who wants a relatively safe investment, with an assured line of business and growth. While Power Grid will not be a multibagger, it will also not give the investor any nasty surprises. Power Grid is the kind of share one should keep in one’s core stock portfolio. It will compound slowly but steadily and create wealth in the long-term.
If Power Grid‘s FPO is priced well, the FPO will be as successful as the Coal India IPO (See Coal India IPO: Good Share For Investment Portfolio and Coal India IPO: Best PSU Stock For Investment.