PowerGrid InvIT IPO Review and Analysis in Detail
Basis Structure of PowerGrid InvIT IPO
The PowerGrid InvIT IPO is set to open for subscription between April 29 and May 3.
Owned by the Maharatna PSU Power Grid Corporation of India, this offering is particularly unique as it is the first Infrastructure Investment Trust from a PSU.
This IPO is sized at Rs. 7,735 crores, out of which Rs. 4,993.48 crores come from the fresh issue segment and Rs. 2,741.51 crores come from the offer for sale segment.
Proceeds from the fresh issue segment of the PowerGrid InvIT IPO will be used for the repayment of debt. The offer for sale, as always, will be credited directly to the selling shareholder. In this case, that is the Power Grid Corporation of India.
According to GEPL Capital, “The offer is priced at around a 3.5x multiple on the book value. Investors can expect a pre-tax yield of 9-11% based on the utilisation of funds to repay the SPV level debt.”
The table below summarises the details of the IPO.
After the offering, the PowerGrid InvIT shares will be listed on both NSE and BSE.
About the Company
PowerGrid InvIT is the first infrastructure investment trust in India that has been set up by a public sector company. The trust officially came into existence after registration with SEBI in January 2021.
The company proposes to acquire five operational projects from its sponsor, which will include a network of 11 power transmission lines and three substations across five different states.
The investment manager for the company is PowerGrid Unchahar Transmission Limited and the trustee is IDBI Trusteeship Services Limited.
India is the third-largest producer of electricity in the world, as of 2014. However, in terms of the final demand for electricity, India makes up only 17%. The Draft National Energy Policy aims to increase India’s share in the global demand for energy to 26% by 2040.
The power sector in India has been growing steadily since independence. From 1.362 MW in 1947, the power generation capacity has increased to 370 GW in 2020.
According to the National Infrastructure Pipeline Report Volume 1, capital expenditure worth Rs. 21 lakh crores have been earmarked for the development of the power and renewable energy sectors. This accounts for more than 20% of the total pipeline. NIP’s Vision 2025 for the power sector includes the following targets.
- 24x7 clean affordable power for all
- Total capacity of 583 GW
- Reduction in share of thermal capacity and increase in share of renewable energy capacity
- Renewable energy share in consumption to increase to approximately 20%
- Growth in per capita consumption to 1,616 units
- Promotion of grid storage and offshore wind energy
- Reforms in distribution
- EV charging infrastructure
Strengths of PowerGrid InvIT IPO
Among strengths, there is the fact that the PowerGrid InvIT will have a significant competitive advantage on account of the reputation of its sponsor. High market share, strong lineage and proven track record automatically skew the scales in PowerGrid’s favour.
Apart from that, the company is backed by the Indian government. This means the chances of non-payment of dues or default risk is almost non-existent in this case.
Weaknesses of PowerGrid InvIT IPO
The PowerGrid InvIT is newly settled. It does not have any operating history, which makes it very difficult to gauge the future prospects with any accuracy.
There is also the fact that the power transmission projects operated by PowerGrid receive revenue on the basis of availability. Any failure to maintain this will adversely impact the cash flow of the company.
In fact, most of the revenues of the company are obtained through the Designated Inter-State Transmission System Customer (DICs). Any delay in payments will impact adversely the operational revenue of the company.
For most Transmission Service Agreements (TSAs), the costs are generally fixed for the term of the agreement. This cost cannot be increased to account for increasing raw materials or fixed costs. In other words, PowerGrid does not have the freedom to maintain its profit margin in this case.
Apart from that, there is the fact that the PowerGrid InvIT falls under the various rules and regulations that govern the power sector in India. Any changes in the same can impact the company’s future prospects.