Power Grid Corporation of India Limited

Transcription

1 (PGCIL) SUBSCRIBE Issue Open: September 10, 2007 Issue Close: September 13, 2007 Sector : Power Generation & Supply Price Band Rs Rs. 52 Issue Summary (Shares in million) Shareholding Pattern (In %) Total Equity Share in Issue Pre-Issue Post-Issue Employee Reservation Portion President of India Net Issue To The Public Employees Of Which Reserved for:- QIB QIB Non - Institutional Non - Institutional Retail Retail Total Equity Share Outstanding Total no. of shares 3,826,219,300 4,208,841,230 Prior to the issue 3, After the issue 4, Company Valuation Multiple PGCIL Industry Avg. Financial Snapshot (Rs. In Million) Sales (Rs. in million) 35, , Operating Profit (Rs. in million) 21, , FY 2007 FY 2006 FY 2005 FY 2004 RONW (%) Sales 35, , , , OPM (%) Total Income 39, , , , NPM (%) Optg Profit 21, , , , P/E (44 & 52) & Net Profit 13, , , , Price to Book Value (44 & 52) 1.73 & 2.04 EPS* Share capital 38, , , , Res&Surplus 68, , , , Objects of the issue: Networth 107, , , , To meet the capital requirements for the implementation of certain Total Debt 193, , , , identified transmission projects. Book Value* To achieve the benefits of listing the equity shares on the stock *The no. of shares are of the post issue equity i.e. 4, mn shares. exchanges. 3. For general corporate purposes. Company Snapshot - PGCIL has shown a CAGR of 17% in the topline, 17% in EBITDA & 24% in the bottomline in the last three years. - Strengths are: PGCIL has transmitted 45% of all the power generated in India; High operational efficiencies; Established track record in expanding transmission systems; Low operational risks in the core business; Diversified business portfolio; Strong financials; Government support; Experienced senior management team; NPM has been over 30% in the last four annual results; International presence. - Weakness are: Negative cash flows in FY 03, 05 & 06; Tariffs in the north-east region are being kept too low for sufficient cost recovery; Undertakes some projects via JV's. - Opportunities are: Sector growth; 45 transmission projects are in various stages of implementation; GoI's eleventh five year plan for transmission projects. - Threats are: Exchange rate fluctuations; Short term contracts with customers in the telecom business; Involved in legal matters; Delay in some of the projects; High debt. - Received the highest annual performance rating from the GoI in each year from Fiscal 1994 till Fiscal The stock is available at a P/E of 14x & 16x at the lower & upper band of the issue price respectively. Industry Scenario - According to the CEA, as at March 31, 2007, India s power generation systems had an installed capacity of around 132,329MW, as against 124,287 MW as at March 31, As at March 31, 2007 thermal power plants powered by coal, gas, naphtha or oil accounted for 65% of the total power capacity in India hydroelectric stations accounted for 26.2% & other sources (including renewable sources of energy and nuclear stations) accounted for 8.8%. - The 17th Electric Power Survey, 2007 ( EPS ) carried out by the CEA projects a peak demand of 113,059 MW in 2008 & 152,746 MW for Fiscal 2012, while the peak demand for the Fiscal 2017 is projected to be at 218,209 MW. This represents a need for the substantial augmentation of power generation capacity. - If the GoI intends to increase installed power generation capacity by 87,663 MW by 2012, it must also facilitate an expansion of the transmission network & inter-regional capacity to transmit power. Global electricity sector investment is anticipated to reach USD 10 tn by More than USD 5 tn will be used to invest in transmission & distribution networks. - With the strengthening of inter-regional connections by 2012, the inter-regional capacity is predicted to grow from 14,100 MW to 37,150 MW. This shall facilitate transfer of power from surplus regions to deficit region.

2 Company Background:- The company commenced operations from Fiscal PGCIL is India s principal electric power transmission company. PGCIL owns & operates most of India s interstate & inter-regional electric power transmission system (the ISTS ). In that capacity, as at June 30, 2007 they owned & operated 61,875 circuit kilometres of electrical transmission lines & 106 electrical substations. PGCIL has since it's inception completed 101 transmission projects & schemes on their own, valued in the aggregate at approximately Rs bn. PGCIL's diversified operations include power transmission, consultancy & telecommunication. Since Fiscal 1995, PGCIL has provided transmission-related consultancy advice to approximately 90 clients in the context of over 225 assignments, both domestically & internationally. PGCIL has diversified into the telecommunication business by creating a telecommunication network principally using their own overhead transmission infrastructure. PGCIL owns & operates a fibre-optic cable network that as at June 30, 2007 consisted of over 19,000 kilometres & connected over 60 Indian cities, including all major metropolitan areas. The promoter is the President of India. PGCIL has entered into JV's with Torrent Power Limited & Jaiprakash Hydro-Power Limited for certain transmission projects. Company Snapshot:- - PGCIL has shown a CAGR of 17% in the topline, 17% in EBITDA & 24% in the bottomline in the last three years. On a Y-o-Y basis, PGCIL has grown at a rate of 14% in the topline, 11% in the EBITDA & 24% in the bottomline. - Strengths are: In Fiscal 2007, PGCIL transmitted approximately 298 bn units of electricity, representing approximately 45% of all the power generated in India; PGCIL has maintained an average system availability of over 99% since fiscal 2002 & has not had a major grid disturbance since January 2003; During the eighth, ninth & tenth five year plans, added 9,724 circuit kilometres, 12,436 circuit kilometres & 19,172 circuit kilometres of transmission lines & 17, 14 & 36 sub-stations, respectively. During the tenth plan, PGCIL undertook 11 transmission projects associated with generation projects, 33 grid strengthening projects, two interregional system strengthening projects & three ULDC projects; The transmission tariffs are presently determined on a cost-plus basis & are intended to provide PGCIL with a 14% return on equity. Further, there is no direct competitors of significant size for the transmission business; Diversified business portfolio; Strong financials; Government support; Experienced senior management team; NPM has been over 30% in the last four annual results; International presence in Afghanistan, Nepal & Bhutan. - Weakness are: Negative cash flows in FY 03, 05 & 06; Tariffs in the north-east region are being kept too low for sufficient cost recovery; Undertakes some projects via JV's. - Opportunities are: Sector growth; As at June 30, 2007, PGCIL had 45 transmission projects that are in various stages of implementation. These projects involve 30,536 circuit kilometres of transmission lines and 34 substations with a total power transformation capacity of 29,420 MVA; Subject to government approvals, PGCIL plans to spend Rs. 550 bn towards investment in transmission projects during the GoI s Eleventh Five Year Plan, which began on April 1, 2007 & ends on March 31, Threats are: Exchange rate fluctuations; Short term contracts with customers in the telecom business; Involved in legal matters; Delay in some of the projects; High debt. - In order to optimise the monitoring & despatch of electricity flows at the national level, PGCIL are currently establishing a National Load Despatch Centre ( NLDC ), which is expected to be completed in Presently, PGCIL is managing the National Grid with inter regional capacity of 14,100 MW, which shall be enhanced to more than 37,000 MW by Received the highest annual performance rating from the GoI in each year from Fiscal 1994 till Fiscal 2006 (FY 2007 not yet determined). - In addition, PGCIL have been requested to prepare feasibility reports in respect of their anticipated role in the construction of transmission systems associated with the Ultra Mega Power Projects being developed by the MoP. - In the consultancy business, PGCIL's domestic clients include almost all of the state power utilities in India, among others. PGCIL has undertaken & are currently undertaking international consulting assignments in Nepal, Bhutan & Afghanistan. - In the telecommunication business, PGCIL has been leasing bandwidth on this network to more than 60 customers, including major telecom operators such as Bharat Sanchar Nigam Limited, Videsh Sanchar Nigam Limited, Tata Teleservices Limited, Reliance Communications Limited & Bharti Airtel Limited. - PGCIL has been entrusted by the GoI with the statutory role of Central Transmission Utility ( CTU ). In this role, they operate as one of the chief agencies responsible for the planning & development of the country s nationwide power transmission network, including interstate networks. - PGCIL is planning to enter the Middle East & African market through power transmission projects. - PGCIL has embarked around Rs.80 bn for setting up the transmission network for the two ultra-mega power projects in Mundra & Susan. - PGCIL will increase it's presence in the electricity distributuion business. Almost 20 state governments have approached PGCIL for setting up distribution facility.

3 Industry Scenario:- + According to the CEA, as at March 31, 2007, India s power generation systems had an installed capacity of around 132,329MW, as against 124,287 MW as at March 31, As at March 31, 2007 thermal power plants powered by coal, gas, naphtha or oil accounted for 65% of the total power capacity in India hydroelectric stations accounted for 26.2% & other sources (including renewable sources of energy and nuclear stations) accounted for 8.8%. + Projected electrical energy requirement for FY 2012, FY 2017 & FY 2022 is 968,659 GWH, 1,392,066 GWH & 1,914,508 GWH respectively. + The 17th Electric Power Survey, 2007 ( EPS ) carried out by the CEA projects a peak demand of 113,059 MW in 2008 & 152,746 MW for Fiscal 2012, while the peak demand for the Fiscal 2017 is projected to be at 218,209 MW. This represents a need for the substantial augmentation of power generation capacity. Such investment in power generation will require increased investment in power transmission & distribution if the additional power is to be effectively disseminated among potential customers. + If the GoI intends to increase installed power generation capacity by 87,663 MW by 2012, it must also facilitate an expansion of the transmission network & inter-regional capacity to transmit power. Global electricity sector investment is anticipated to reach USD 10 tn by More than USD 5 tn will be used to invest in transmission & distribution networks. Average investment in T&D in India during the Tenth Plan was about 32% of investment in generation. + With the strengthening of inter-regional connections by 2012, the inter-regional capacity is predicted to grow from 14,100 MW to 37,150 MW. This shall facilitate transfer of power from surplus regions to deficit region. For instance, the Eastern region currently has surplus power, part of which is being transferred to the Southern region, which currently has a deficit. + The process of setting up the national grid was initiated with the formation of the central sector power generating & transmission companies, NTPC, NHPC & Power Grid. Power Grid was made responsible for planning, constructing, operating & maintaining all interregional links & taking care of the integrated operation of national & regional grids. The national grid, when fully operational, is expected to have a total inter-regional transmission capacity of 37,150 MW. It is expected to be fully operational by around The Government of India has envisaged a capacity addition of 100,000 MW to meet its mission of power for all by Achievement of this target requires large capacity projects at the national level to meet the requirements of a number of states. The Ministry of Power is developing nine Ultra Mega Power Projects (UMPPs) through tariff based competitive bidding out of which Mundra & Sasan UMPP s have been transferred to successful bidders. These 9 UMPP s each with the capacity of about 4,000 MW would also have scope for further expansions. + The Government recognized that in the sates of Arunachal Pradesh, Bihar, Jharkhand, Meghalaya, Uttar Pradesh less than 75% of villages were electrified, while in the states of Assam, Chhatisgarh, Manipur, Orissa, Uttaranchal & West Bengal less than 95% but more than 75% of villages were electrified. Under the RGGVY, the GoI will provide a 90% capital subsidy & make soft loans available to SEBs through the REC. It was estimated that for electrifying 125,000 villages, providing for the rural electrification of households below the poverty line and for augmenting a backbone network in already electrified villages, a capital cost of Rs bn, Rs. 315 bn Rs. 462 bn, respectively, totaling Rs. 1,625 bn is required. The Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme estimated total GoI subsidies amounting to Rs.1,475 bn. + During Fiscal 2007, village electricity infrastructure was created under the RGGVY scheme in 26,073 villages, including villages in the states of Uttar Pradesh (15,025 villages), Bihar (7,609 villages), West Bengal (1,886 villages), Rajasthan (755 villages) & Uttaranchal (798 villages). Company* Multiple (Times) EPS Share Price Dividend/ Share EV/EBITDA P/E MCAP/SALES MTBV (Rs.) (Rs.) (Rs.) PGCIL at Rs.44 L BAND PGCIL at Rs.52 U BAND *Source : Based on annualised figure of FY07 from RHP & Capitaline. No listed companies can be taken for peer comparison.

4 Income Statement Rs, mn Net Income FY 2007 FY 2006 FY 2005 FY , , , , Employee remuneration & benefit Depreciation Transmission, administration & other expenses Operating Expenditure Operating Income Provisions written back Other Income Gross Profits Finance & Interest charges Provisions & deferred revenue exp. w/o Prior period exp / (income) Profit Before Tax Tax Profit After Tax Extraordinary Items Net Profit 3, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , (92.81) (274.29) , , , , , , , , , , (505.51) 12, , , , Cash Flow Statement Rs, mn FY 2007 FY 2006 FY 2005 FY 2004 Cash flow from operations Cash for working capital Less : Direct Taxes Net Operating Cash Flow - A Fixed assets Capital work in progress Advance for capital expenditure Net purchase of investments Lease Receivables Interest & dividend received Net Cash Flow From Investing - B Proceeds from equity Net proceeds / (repayment) from borrowings Development surcharge received Net Grants in Aid Dividend, dividend tax & interest payments made Net Cash Flow From Financing - C Net Cash Flow (A+B+C) Opening Cash Closing Cash 30, , , , , , , , , , , , , (1,099.85) (495.75) (1,270.16) 1, (64,459.19) (30,377.27) (32,120.01) (16,937.15) (6,049.39) (13,019.49) 1, (7,442.47) 1, (1,102.01) (312.86) (1,142.13) (2,249.95) , , , , (67,360.65) (45,030.07) (29,973.50) (21,438.32) 2, , , , , , , (1,952.32) 1, (213.80) (15,172.23) (11,563.83) (10,495.20) (10,473.65) 29, , (504.13) 6, (149.25) (1,849.99) 6, , , , , , , , ,889.71

5 Balance Sheet Rs, mn Sources of Funds FY 2007 FY 2006 FY 2005 FY 2004 Equity Share Capital Reserves & Surplus Miscellaneous expenditure (written off) Networth Secured Loan Unsecured Loan Loan Funds Deferred Tax Liability, net Advance against depreciation Grabt in Aid Development surcharge Total Liability 38, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Application of Funds Gross Block Less: Depreciation Net Block Capital work in progress Construction stores & advances Net Fixed Assets Investments Current Assets Inventories Sundry Debtors Cash & Bank Other current assets Loans & Advances Less: Current Liabilities & Porvisions Net Current Assets Total Assets 290, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Particulars FY 2007 FY 2006 FY 2005 FY 2004 RONW 12.51% 10.92% 9.53% 8.61% OPM 59.38% 61.10% 57.55% 54.63% NPM 37.30% 34.28% 33.57% 30.83% * Depreciation has been taken into consideration for the purpose of calculating operating profit.

6 Objects of The Issue:- Sl. No Particulars Funds requirement for identified projects. General corporate purpose. Issue expenses. Total Amount (INR,mn) 127, [ ] [ ] [ ] Out of the 15 identified projects, seven projects are being funded by the World Bank & the Asian Development Bank. At the lower band & the upper band, PGCIL would be raising approximately Rs bn & Rs bn respectively. Post issue, the market cap based on the lower & upper band would be approximately Rs bn & Rs bn respectively. Abhishek Kothari Research Associate abhishek.kothari@spasecurities.com SPA CAPITAL SERVICES LIMITED SPA MERCHANT BANKERS LTD. SPA SECURITIES LTD. SPA COMTRADE PRIVATE LIMITED SPA INSURANCE SERVICES LTD. Investment Advisory services, AMFI Reg. No. ARN-0007 SEBI registered Category-1 Merchant Bankers SEBI Regn. No. INM Member NSE-Capital Market & Wholesale Debt Markets,SEBI Regn.no. INB ,F&O Market,SEBI Regn.no. INF Member BSE-Capital Market,SEBI Regn.no.INB Member of NCDEX & MCX. NCDEX TMID-00729, NCDEX FMC no.ncdex/tcm/corp/0714 Direct Broker for Life and General Insurance broking IRDA Lic. Code No. DB053/03 NEW DELHI 25, C-Block Community Centre, Janak Puri, New Delhi Tel: (011) , , Fax: (011) B- 1A- 132, Sector-51, Noida Ph: Fax: , Qutab Plaza, DLF City, Phase- I, Gurgaon Ph: Fax: MUMBAI 101, 10th Floor, Mittal Court - 'A' Wing, Nariman Point, Mumbai Tel: (022) / Fax: (022) / KOLKATA Diamond Chambers, Room no. 8-O, 8th Floor, 4 Chowringhee Lane, Kolkata Tel: (033) Fax: (033) BANGALORE 703 & 704, 7th Floor, Brigade Tower, 135, Brigade Road, Corporation Division no. 61, Bangalore Ph: JAIPUR UL-15, Amber Tower, Sansar Chand Road, Jaipur Tel: (0141) / Fax: CHENNAI 3H, 3rd floor, East Coast Chambers, 92/34, G.N.Chetty, T. Nagar, Chennai Tel: (044) Fax: AHMEDABAD 407, Anand Mangal Complex - I, Behind Omkar House, C.G.Road, Navrangpura, Ahmedabad Tel: (079) Disclaimer: This information is for general purpose only, without regard to any specific objectives, financial situations and needs of any particular person. The information contained herein does not constitute an offer or an invitation for an offer to invest. These materials summarise certain points relating to the Offer and are not a comprehensive summary. Please note that this information is based on the disclosures made in the Red Herring Prospectus. Investors are requested to refer to the Red Herring Prospectus for risk factors, details about the issue and issuer company before taking any investment decision. SPA and/or its representatives do not accept any liability whatsoever direct or indirect that may arise from the use of the information contained herein. Inst. Dealing Desk : 101, 10th Floor, Mittal Court-'A' Wing, Nariman Point, Mumbai T e l. No. : , Fax No / E m a i l : cms@spacapital.com