Power Grid IPO: Right pricing

Most broking houses are recommending the IPO of the country’s principal electric power transmission to their clients, citing assured returns on its incremental investments would provide steady earnings growth in future.

The Mini Ratna category-I public sector undertaking owns and operates most of the India’s inter-state and inter-regional electric power transmission system.

Analysts feel that the company that has excellent operational availability (above 99%), and has not had any grid disturbances since January 2003, has been reasonably priced at Rs 44-52. Its monopoly position in the power transmission sector is another of the key positive, they say.

There is consensus that the company’s planned capital expenditure (Rs 55,000 crore) in the next five years and aggregate projects (of Rs 24,800 crore) till date will be implemented effectively, due its strong financial position. Mix of diversified business of transmission system, consultancy in transmission related projects and telecommunication business also bodes well.

However, there are a few negatives, the current regulations do not give the company leverage to increase tariff on the basis of efficiency and market opportunity. The transmission income of the company is dependant on State Power Utilities, which usually have weak credit histories. Most analysts have recommended subscribing at the higher end of the price band.