Rakhi- It cannot get any scarier

Happy Rakhi to everybody and lets pray no guy was ambushed today (esp not like this one)
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Power Grid IPO

Date: 10th -13th Sept.
Price band: 44-52
No of shares: 573,932,895 equity shares
Issue Size: Rs 2984 crore.

1) PGCIL (power grid corporation of India Ltd) is the country’s principal power transmission company and Mini-Ratna.

2) Since I believe the infrastructure esp. power is going to drive India’s second phase of development, this company is well poised to benefit from it. It owns and operates almost all of the nation’s interstate and inter-region transmission systems. (61,875 km of transmission line and 106 substations) Last year about 298 billion units were transmitted through their infrastructure (about 45% of the power generated).

3) This company has no competitors and even in the next 10-15 years, I do not foresee any other infrastructure company (indian or foreign) to pose a threat. This is primarily because Power grid has acquired a lot of land for the transmission lines at very low prices, and it would be very tough for another company to replicate their model.

4) PTC (power trading corporation) is soon going to start up a electricity trading board where states can sell and buy power at real time. All this power is going to go through the national power grid… So the company positioned to benefit from this is Power Grid Corporation.

5) The country is going for Mega (larger) power plants which satisfies the need of the region instead of having numerous power plants in individual cities. This creates a big business opportunity for Power Grid.

1) Transmission lines have huge infrastructure and fixed costs. Along with the land value, an interstate power transmission lines often costs more than the power plant itself.

2) This a a government owned company (bureaucratic losses, red tape etc.) so it might take a couple of years for it to generate some real wealth for the investors.

In short over a 3-5 year horizon, this company should do wonders (just like NTPC), but in short term it might not generate sufficient wealth for the investors primarily because of its inefficient governmental legacy.