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IPO

Power Grid IPO

Date: 10th -13th Sept.
Price band: 44-52
No of shares: 573,932,895 equity shares
PE:
Issue Size: Rs 2984 crore.

Pros:
1) PGCIL (power grid corporation of India Ltd) is the country’s principal power transmission company and Mini-Ratna.

2) Since I believe the infrastructure esp. power is going to drive India’s second phase of development, this company is well poised to benefit from it. It owns and operates almost all of the nation’s interstate and inter-region transmission systems. (61,875 km of transmission line and 106 substations) Last year about 298 billion units were transmitted through their infrastructure (about 45% of the power generated).

3) This company has no competitors and even in the next 10-15 years, I do not foresee any other infrastructure company (indian or foreign) to pose a threat. This is primarily because Power grid has acquired a lot of land for the transmission lines at very low prices, and it would be very tough for another company to replicate their model.

4) PTC (power trading corporation) is soon going to start up a electricity trading board where states can sell and buy power at real time. All this power is going to go through the national power grid… So the company positioned to benefit from this is Power Grid Corporation.

5) The country is going for Mega (larger) power plants which satisfies the need of the region instead of having numerous power plants in individual cities. This creates a big business opportunity for Power Grid.

Cons:
1) Transmission lines have huge infrastructure and fixed costs. Along with the land value, an interstate power transmission lines often costs more than the power plant itself.

2) This a a government owned company (bureaucratic losses, red tape etc.) so it might take a couple of years for it to generate some real wealth for the investors.

In short over a 3-5 year horizon, this company should do wonders (just like NTPC), but in short term it might not generate sufficient wealth for the investors primarily because of its inefficient governmental legacy.

11 replies on “Power Grid IPO”

MOST OF it is borne by the state electricity board.. the power generation and distribution company (from the plant to the electricity board) get a fair price for their services….

ya but the risk is there.. but i am so bullish about power sector that i would like to undermine it

Hi

Your IPO reviews are quite good. You can probably consider having a separate blog/website for publishing investment related articles.
Also, I am a bit curious about your background… do u work with some investment/brokerage house? (I am not demanding an answer for this question!!)
Anyway, thanks for your opinion on PGCIL, it has reaffirmed my bullishness on it and I’ll definitely be applying for it.

@Vinodh
Thanks for the encouragement…. and welcome to ENagar

I am a techie with no professional background in finance/investing… but I do invest a lot.. and till now it has been a great experience..

You can find more about my finance background in http://enagar.com/2006/11/27/stock-advice/

I had thought seriously about buying a separate domain for investments, but the problem is the ENagar comsumes a lot of my time and also that I do not give investment advice a lot, and rarely do trading/puntering … (apart from IPOs, I hardly do 1-2 transactions a month) which will not generate sufficient value for the readers.

However if you have a stock in mind, I would be glad to do some fundamental research on it.

i had never heard of Alstom Projects India Ltd. before… but I cannot understand what u have against this stock…. the stock has grown 3 folds over the past 1 year.. I do not think share holders could have asked for anything more.

about ONGC.. yes oil sector has always been tricky.. primarily because of the price controls.. but the company has not been performing very well.. oil exploration is a risky business (u either hit a hydrocarbon source.. or lose the entire investment)… and ONGC has not been able to substantially increase either its revenue or profits (even though oil is at its all time high)
So its better if we rate ONGC as underperformer

the stock is fine its the govt im worried about
so id prefer players that make equipment for this sector than the govt players

the stock if im right is illiquid and easy to manupulate

on ongc how can the co work with its hands tied it needs a great management and liquidity to operate and lots of both ..
the only person who radically changed ongc was raha and now tht he is gone i m planning to push the sell button as now it will be filled with croonies

with the market re-approaching 15.5K levels.. profit booking should not be a bad idea…

equipment manufacturer r a good idea.. but unfortunately everybody thinks it to be so.. Alstom Projects India Ltd is at a PE of 45.. so i think i will wait for the markets to fall.

i have no expertise in predicting the short term trends… but i do hold over 100 shares of ICICI bank (IPO) and i am waiting for the subsidiaries of ICICI to be spin offed from the parent. and i am ready to wait for a year or two for this to happen.. after all banking sector is one of the strengths of the indian economy (with lots of room for improvement) AND I AM bullish about india

about equipment manufacturing….. usually i invest in stocks that r out of fashion… and wait for them to be back in fashion… its a risky long term bet.. but it usually works out

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