Power Grid IPO : Sharekhan Note

Sharekhan said that Power Grid has a robust execution record and a favourable regulatory scenario, which helped in maintaining its monopoly position. Its operating profit margin has also been high (over 80%) mainly driven by its ramp-up in transmission network and increasing contribution from its non-transmission businesses. The company also has a robust cash inflow from operations. In future, its revenue would be driven by the successful completion of its transmission projects and the sustenance of favourable regulatory regime. The company is not having any direct competitors (of comparable size and business exposure) in the listed space. As per the consensus estimate, the earnings are
expected to grow at a compounded annual growth rate (CAGR) of 15.6% over FY2010-12. At the current market price of Rs104, the stock trades at 18.1x its FY2011 and 15.6x its FY2012 consensus pre-issue earnings estimates. The higher price band of the issue is a 13% discount to today’s closing price.


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