PowerGrid InvIT IPO review: PowerGrid InvIT’s Rs 7,735 cr IPO opens today: Should you subscribe?

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NEW DELHI: The Rs 7,735 crore initial public offering (IPO) of PowerGrid Infrastructure Investment Trust (InvIT) is set to open for public bidding on Thursday. The issue will close on May 3.

Most analysts say investors should subscribe to the issue as it offers prospects of lucrative and consistent yields. The issue is a good option for investors looking for a 9-12 per cent yield arising from stable cash flow, they said.

The company management says the InvIT is likely to give distributable cash flow at an average of Rs 1,150 crore over the next three years. This, analysts say, would imply an 11 per cent cash flow yield.

“The product offers stability in cash flow, low counter-party risks, strong lineage of Power Grid Corporation and growth from future acquisition of projects. This coupled with replacement of Power Grid Corporation debt via IPO proceeds implies the InvIT will start out as debt-free,” said Rupesh Sankhe of Edelweiss Securities.

The stability in cash flows stems from transmission charges being fixed for a period of 35 years. There is minimal price risk arising from transmission charge resetting, which provides stability and long term visibility.

Power transmission projects are characterised by low levels of operating risk. Once a transmission project has been commissioned, it requires low levels of expenditure for O&M.

Its peer Sterlite Power-sponsored IndiGrid is trading at a 9 per cent yield with a 9 per cent premium to its NAV value. PowerGrid InvIT is available at 11 per cent yield and a 1 per cent premium to its NAV value at the upper price band.

The issue is priced in the Rs 99-100 band. It includes fresh issues of units worth Rs 4,993.48 crore, while the rest is an offer for sale. The InvIT will use the proceeds to provide loans to the initial portfolio assets for repayment or pre-payment of debt.

The InvIT proposes to acquire five projects initially with a total network of 11 power transmission lines of approximately 3,698.59 km and three substations having 6,630 MVA of aggregate transformation capacity.

PowergridETMarkets.com

The InvIT has been given a provisional credit rating of AAA (Stable), AAA (Is) Stable and provisional AAA/Stable by ICRA, CARE Ratings and CRISIL Ratings, respectively.

“The offer is priced at around 3.5 times the book value. Investors can expect a pre-tax yield of 9 to 11 per cent based on the utilization of funds to repay the SPV level debt,” said analysts at GEPL Capital, who assigned a ‘subscribe’ rating to the issue.

“An important feature of the InvIT is its ability to produce consistent cash flows owing to long tenure contracts, and headroom for growth given potential to lever the balance sheet and acquire more assets from PowerGrid. The management has also mentioned a strong pipeline of projects that can be monetized by the InvIT.”



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