Power Grid investors may make a killing

Retail and high net worth individuals (HNI), who had invested in the initial public offering of Power Grid Corporation of India (PGCIL), are expected to make a killing on the listing day, if the grey market premium on the stock is any indication. Brokers, who trade in the grey market, said bids of Rs 70-72 per share were doing the rounds late Friday compared with the issue price of Rs 52 per share.

The price band of the IPO was Rs 44-52 per share, and the company finalised the issue price at the upper end of the band on Friday. A Mumbai-based broker who tracks grey market prices of IPOs told ET that a high net worth investor who had borrowed money to invest in the IPO would have incurred a financing cost of roughly Rs 10 per share.

This number has been arrived at after taking into account the prevailing rate of interest for IPO financing (usually between 13% and 15%) and the number of times the non-institutional portion of the issue has been oversubscribed.
If the stock manages to hold on to its grey market premium till the listing day, investors stand to nearly double their money.

However, the premiums could change for the better or the worse by the time the stock is listed. For retail investors, the margin of profit could be much more due to lower cost of financing. The retail portion of the issue has been subscribed seven times.

Analysts attribute the overwhelming response to the PGCIL offer to its reasonable pricing. Most brokerages had recommended clients to subscribe to the issue and underscored factors like high revenue visibility, significant ramp up in transmission capacity, among others. 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. Power Grid handles the transmission of as much as 45% of the power generated in India, making it the largest player in the sector.