Power Grid‘s FPO which opened today, 9th November 2010, is attractively priced. Power Grid is offering 84,17,68,246 equity shares at the price band of Rs 85 – 90 a share. On Monday, the shares of Power Grid were trading at Rs. 100. This means that even at the higher price band of Rs. 90, Power Grid is offering shares at a discount of 10% to the prevailing market price. In addition, retail investors who subscribe to the shares of Power Grid get a 5% discount, making it very attractive for investment.
Power Grid, from a short-term perspective of about a year or so, is likely to trade in the range of about Rs. 120 per share. This is the range that Power Grid has been stuck in for the past one year or so and there is no reason to believe that anything dramatic will happen to Power Grid‘s share price. This will make it very attractive for a retail investor, who even if he invests at the cut-off price of Rs. 90, will get the shares after a 5% discount at Rs. 85.50.
Apart from the short-term profit between the CMP and the FPO price, Power Grid is an attractive long-term investment opportunity. 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 has been doing quite well in the recent past. 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 also 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.
So from all perspectives, whether long-term or short-term, Power Grid is certainly a good investment opportunity. (See Also Power Grid FPO: Good PSU Stock For Investment Portfolio)