IPO Analysis: PowerGrid InvIT

IPO rating- Invest for long-term gain  

About the issue  

Power Grid Infrastructure Investment Trust is coming out with its initial public offering (IPO) of equity shares of Rs 7,734.99 crore. The public issue comprises a fresh issue of equity shares worth Rs 4,993.48 crore and offer-for-sale (OFS) of up to Rs 2,741.51 crore. The price band of the issue has been fixed at Rs 99 to Rs 100 per equity share. The IPO will open on April 29, 2021, and close on May 3, 2021. The issue may list on May 17, 2021. The IPO market lot size is 1,100 shares. About 75 per cent of the offer is reserved for institutional investors, of which, 60 per cent is reserved for anchor investors. The remaining 25 per cent of the offer is available for allocation on a proportionate basis to non-institutional investors. The net proceeds from the fresh issue offer will be utilised for providing loans to the initial portfolio assets for repayment or pre-payment of debt, including any accrued interest, availed by the initial portfolio assets and for general corporate purposes. With its public issue, PowerGrid InvIT will become the third InvIT to list on domestic stock exchanges, after IRB InvIT and IndiGrid Trust InvIT. 

About the company  

Power Grid Infrastructure Investment (PowerGrid InvIT) is owned by the state-run Power Grid Corporation of India. This will be the first infrastructure investment trust (InvIT) in the country to be floated by a public sector company. Powergrid InvIT (Infrastructure Investment Trust) owns, constructs, operates, maintains & invests in power transmission assets in India. Powergrid InvIT got registered with SEBI as an InvIT on January 7, 2021. The sponsor of Powergrid InvIT is Power Grid Corporation of India Limited (PGCIL). PGCIL is the largest power transmission company in India. Powergrid InvIT's investment manager is Power Grid Unchahar Transmission Limited. It is responsible for managing InvIT, the initial portfolio assets as well as for undertaking investment decisions relating to its assets. Power Grid InvIT's trustee is IDBI Trusteeship Services Limited, which is responsible for ensuring that its business activities & investment policies comply with the provisions of the InvIT regulations, and also, for monitoring the activities of the investment manager as well as the project manager.  

Competitive strengths  

The company has a strong lineage & support from the sponsor and the project manager.  

It has a skilled and experienced investment manager with a strong corporate governance philosophy.  

It has consistent and stable cash flows from assets with long-term visibility and low counter-party risks.  

The company has government support and an established regulatory framework.  

It has strategic and critical nature of power transmission infrastructure with a low risk of emergence of alternate infrastructure.  

Financials  

Since this InvIT is newly formed i.e. in the month of January 2021, there is no historical financial performance.  

Recommendation   

InvITs are instruments like 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. Investors can expect a regular income by investing in such assets. The company intends to distribute at least 90 per cent of the net cash available for distribution to its unitholders once at least every quarter in every financial year. It means that the investors can get regular income every quarter. The company intends to have a focussed business model with productive & operational efficiency to enhance returns. The company intends to capitalise on value-accretive growth through acquisitions and non-transmission revenues. The investment manager aims to maintain an optimal and varied portfolio of transmission assets, as well as an efficient capital structure and balanced consolidated leverage, to provide for consistent & predictable cash flows. PowerGrid InvIT is a pooled investment instrument. The income to the investor will come from the regular payout given by the company to the unit holders from available surplus cash. Hence, investors with a long-term perspective can invest in this IPO.