IPO Note - Power Grid Corporation of India Ltd By Nirmal Bang Ltd
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BACKGROUND
PG Invit (Powergrid Invit) is sponsored by PGCIL, a PSU Maharatna and the largest power transmission company in India. PG Invit proposes to acquire five projects initially from PGCIL, with a total network of 11 power transmission lines of 3,699 ckm and three substations having 6,630 MVA of aggregate transformation capacity, as of December 31, 2020, across five states in India (the “Initial Portfolio Assets”).
Details and Objects of the Issue
* The total issue size is Rs. 7735 Cr constituting (i) Offer For Sale of up to 27.42 Cr units aggregating to Rs. 2742 Cr by PGCIL; and (ii) fresh issue of up to 49.93 Cr units aggregating to Rs. 4993 Cr. The Offer shall constitute 85% of the postoffer paid-up equity capital of the company.
* PG Invit shall utilise the proceeds from the fresh issue towards retiring debt.
Investment Rationale:
* Strong lineage and support from Sponsor and Project Manager i.e. PGCIL
* Consistent and stable cash flows from assets with long term visibility and low counter party risks
* Capitalize on value accretive growth through acquisitions
* Strong financial position
Recommendation – Attractive risk-adjusted returns - Yield of 12%
We are sanguine on PG Invit’s business model, which is backed by predictable cash flows and offers growth visibility. A Government backed sponsor like PGCIL further instills confidence. PG InvIT is AAA rated and at the issue price of Rs. 100 per unit, offers 12.0% yield, trading at a spread of ~600 bps to the 10 year G-sec (6.0%). In our view, such a spread is very attractive given the high degree of certainty of cash flows & distribution per unit going forward.
Investor return in PG Invit which is a quasi-equity instrument will be a combination of quarterly dividend (our expectation of Rs. 3 per unit per quarter) and the unit’s price appreciation (our expectation of 20-30% listing gain). Upon listing we expect the yields to settle between 9-10% in line with that of the existing listed Invit of Indigrid; which translates to the Unit price settling in the range of Rs. 120-130. We recommend
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