Power Grid InvIT IPO opens; should you susbcribe?

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Power Grid Infrastructure Investment Trust (InvIT): Initial public offering (IPO) by Power Grid Infrastructure Investment Trust (InvIT) hit the primary market on April 29. The company has fixed a price band of Rs 99-100 per unit for its Rs 7,735 crore public issue. The IPO will close on May 3.

Power Grid Infrastructure Investment is owned by the state-run Power Grid Corporation of India. This will be the first InvIT in the country to be floated by a public sector company. The IPO comprises a fresh issue of shares worth Rs 4,993.48 crore and offer for sale to the tune of Rs 2,741.50 crore by selling shareholders.

InvITs are instruments on the pattern of mutual funds and are designed to pool small sums of money from a number of investors to invest in assets that give cash flow over a period of time. The proceeds from the offer will be utilised for providing loans to the initial portfolio assets for repayment or pre-payment of debt, including any accrued interest, and for general purposes.

The minimum market lot size for the IPO is 1,100 shares, which means an individual has to invest Rs 1,10,000 at the upper price band. Most brokerages have advised subscribing to the issue. Here’s what they have to say:

Elara Capital: Subscribe

Power Grid InvIT will start out as debt-free, provided more room for the growth from future acquisition of PowerGrid’s tariff-based competitive bidding portfolio of Rs 21,000 crore which is under construction at present.

Dolat Capital: Subscribe for yield

PowerGrid InvIT is a good option for yield investors who can expect an 11-12% yield arising from stable cash flows. The valuations indicate a P/B of 3.5 times, as compared to Power Grid Corporation of India (PGCIL) price-to-book value of 1.6x. However, the InvIT has superior over 20% ROEs compared to the average ROE of 15% for PGCIL. The brokerage recommended investors looking for yield to subscribe to the IPO.

Marwadi Shares and Finance: Subscribe

As per management projections, Powergrid InvIT is likely to generate cash flow from operations at an average of Rs 1,170 crore over the next three years, which implies a 10% cash flow yield. The brokerage recommends to “Subscribe” this IPO as the sponsor is the mega player with many ongoing projects along with strong financial performance and stable cashflows.