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• Power Grid Corporation of India Limited
• Price Band - Rs.85 to Rs.90
• Issue Size - Rs.7028.88 crores to Rs.7442.34 crores
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Power Grid Corporation of India Limited (PGCIL) is India's principal electric power transmission company. Company was designated a Mini-Ratna Category-I public sector undertaking in October 1998 and was conferred the status of "Navratna" by the GoI in May 2008.

Objects of the issue:
The objects of the offer are to divest 18.2% equity shares held by Government of India in the company & to realize benefits of listing the equity shares on the stock exchanges.

Investment Rationale:

• Leadership position in Indian power transmission sector: PGCIL owns and operates more than 95% of India's interstate and interregional electric power transmission system ("ISTS"). During the six month period ended Sep30, 2010 company transmitted approx. 202.59 bn units of electricity, representing approx. 51% of all the power generated in India. PGCIL was ranked as the world's third largest transmission utility by the World Bank in January 2009.
• High operational efficiencies: PGCIL has maintained average availability of over 99% for its transmission system since FY02. Since FY94, PGCIL has been rated "Excellent" by GoI on an annual basis as a result of achievement of performance targets. Company has introduced state-of-the-art operation and maintenance measures such as carrying out live line maintenance using hotline maintenance equipment, including using helicopters to clean polluted insulators, and establishing Emergency Restoration Systems ("ERS") for restoration of collapsed transmission lines in minimum possible time.
• Attractive tariffs, competitive landscape and business model: Company's tariffs are determined on a cost plus tariff basis and provide it with a 15.5% return on equity until March 31, 2014. Company also earns additional incentives for the timely commissioning of transmission projects and for maintaining high system availability pursuant to CERC norms. PGCIL has no direct competitors of significant size for transmission business.
• Diversified business portfolio: Company is engaged in transmission-related consultancy services to 115 clients in 330 domestic and international projects. Company is currently involved in 63 domestic and 12 international consultancy projects of various sizes. PGCIL has leveraged its nationwide transmission system to create an overhead fiber-optic telecommunication cable network using optical ground wire on power transmission lines. As at September 30, 2010, the network consisted of 20,733 kilometers and connected 129 Indian cities, including all major metropolitan areas.
• Strong financial position and cash flow from operations: PGCIL has a strong financial position, which will help finance expansion plans in coming years. As at Sep 30, 2010, debt-equity ratio was 2.1:1. Net cash flow from operating activities was Rs.33,78.07Cr, Rs.66,19.17Cr and Rs.65,90.64Cr for the six month period ended Sep 30, 2010 and FY10 and FY09 respectively.

Valuation:

PGCIL enjoys EBITDA margin of 84% and PAT margin of ~33% both of which are on the higher side. ROE is ~8%, which is justified given the defensive nature of the stock. Company recorded 22% and 18% CAGR growth in Revenues and PAT respectively over the past three fiscal years. At the IPO price band of Rs.85-Rs.90, PGCIL is available at 1.6x P/BV and 1.8x P/BV at the lower and upper end of its post-IPO book value. Given the healthy cash position, almost 100% availability and near monopoly in the inter-state power transmission business, we recommend SUBSCRIBE with a long term perspective.

Source : Equity Bulls

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