Monday, June 21, 2010

Power Grid Corporation FPO: Monopoly Player, But Only Long Term Value

In sales, Power Grid Corporation (BSE: 532898, NSE: POWERGRID) is comparable to Tata Power (BSE: 500400, NSE: TATAPOWER) or Reliance Infrastructure (BSE: 500390, NSE: RELINFRA). In profits, even better, made small only by power leader NTPC (BSE: 532555, NSE: NTPC). But when it comes to market dynamics, even NTPC is no match, as Power Grid is a near monopoly in its core segment of inter-state power transfers, while NTPC is getting increasingly pressured from all sides. And notably, the Power Grid counter is yet to experience a run up. Truly, an occasion for the Indian public to hold part ownership of their own treasures, as per the disinvestment vision. This FPO will also be one of the largest at Rs. 8000 crore. But with a slightly higher price-to-earnings than the industry average, and almost 3X price-to-book, Power Grid seems fully priced, with not much money left on the table for retail investors entering through FPO, especially if they have a short-term outlook. However, a notable upside is that Power Grid Corporation hasn't dipped in sales or profits for the last six years.

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