Analysing PowerGrid InvIT IPO

Ever since the PowerGrid InvIT IPO was announced, there has been a buzz in the market about the prospective IPO. Slated to open on Thu, 29th of Apr 2021, this would be the first time a state-owned company is looking to monetise its infrastructure assets by forming an Infrastructure Investment Trust (InvIT). Perhaps, this is why the IPO is creating such a buzz in the market. Let’s have a detailed look into the PowerGrid IPO details.

This article covers:

• About PowerGrid Corporation of India Limited
• Highlights of PowerGrid Corporation of India Limited
• About PowerGrid InvIT
• PowerGrid InvIT IPO details
• Other details of PowerGrid InvIT IPO
• Reservation of PowerGrid InvIT IPO
• Utilisation of the IPO proceeds
• Strengths of PowerGrid InvIT
• Objectives of PowerGrid InvIT
• Financials of PowerGrid InvIT
• Risks of PowerGrid InvIT IPO

Table of Contents

• About PowerGrid Corporation of India Limited
• Highlights of PowerGrid Corporation of India Limited
• About PowerGrid InvIT
• PowerGrid InvIT IPO details
• Other details of PowerGrid InvIT IPO
• Reservation of PowerGrid InvIT IPO
• Utilisation of the IPO proceeds
• Strengths of PowerGrid InvIT
• Objectives of PowerGrid InvIT
• Financials of PowerGrid InvIT
• Risks of PowerGrid InvIT IPO

About PowerGrid Corporation of India Limited

PowerGrid Corporation of India Limited is a state-owned electric utility company whose headquarters are in Gurugram. The Government of India owns a 51.34% stake in the company, while the public holds the rest. PowerGrid offers electricity transmission, consultancy, and telecom services in India. It operates transmissions in about 90% of the inter-state and inter-regional networks.

Highlights of PowerGrid Corporation of India Limited

Here are some interesting facts about the company:

• The company has been bestowed the ‘Maharatna’ distinction
• PowerGrid is the Central Transmission Utility (CTU) and the country’s largest Electric Power Transmission Utility
• The company is rated ‘BBB’ internationally by Standard and Poor as well as by Fitch. In India, it enjoys CRISIL AAA, ICRA AAA, and CARE AAA credit ratings

About PowerGrid InvIT

An Infrastructure Investment Trust (InvIT) is a pooled investment scheme wherein both institutional and retail investors can invest. The InvIT follows a tiered structure of investment, and it is established by a sponsor. The pooled investments of the scheme are then used for investment in the infrastructure sector directly or by investing in the PowerGrid Corporation of India Limited owns Special Purpose Vehicles (SPVs).

The PowerGrid InvIT is one such InvIT that is owned by the PowerGrid Corporation of India Limited. It was registered with SEBI on 7th Jan 2021. And the sponsor of PowerGrid InvIT is PowerGrid, which also acts as the Project Manager of the scheme. The InvIT’s portfolio is proposed to contain 5 main assets comprising 11 transmission lines. These 5 assets include the following:

• PowerGrid Vizag Transmission Limited (PVTL)
• PowerGrid Kala Amb Transmission Limited (PKATL)
• PowerGrid Warora Transmission Limited (PWTL)
• PowerGrid Parli Transmission Limited (PPTL)
• PowerGrid Jabalpur Transmission Limited (PJTL)

The InvIT would have a 74% stake in each of these projects. The balance 26% stake is expected to be acquired from PowerGrid in the form of debt after 2024, when the lock-in period would end.

PowerGrid InvIT IPO details

Important details of the PowerGrid InvIT IPO include the following:

• The IPO would open on 29th Apr 2021 and close on 3rd May 2021. Anchor investors, however, can bid from 28th Apr 2021
• The price band of each share is between Rs 99 and Rs 100
• The Initial Public Offering would include both a fresh issue of shares as well as an Offer for Sale (OFS). The valuation of the fresh issue is Rs 4,993.98 cr, while the valuation for OFS is Rs 2,741.50 cr
• Once the IPO is closed, the shares of PowerGrid InvIT would be listed on the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange)
• Except for anchor investors, the minimum bid should be for 1,100 units. After that, investors can bid in multiples of 1,100 units

Other details of PowerGrid InvIT IPO

• The trustee of the IPO is IDBI Trusteeship Services Limited.
• The sponsor is PowerGrid Corporation of India.
• The investment manager of the issue is PowerGrid Unchahar Transmissions.
• The lead managers of the IPO are Axis Capital, ICICI Securities, HSBC Securities and Capital Markets (India), and Edelweiss Financial Services.

Reservation of PowerGrid InvIT IPO

A part of the IPO is reserved for specific bidders, while the rest is open for public subscription. Here are the details of the reservations:

• Up to 75% of the IPO is reserved for institutional investors
• Out of the 75% reservation for institutional investors, 60% is reserved for anchor investors
• The remaining 25% of the IPO is available for non-institutional investors who would get allotment on a pro-rated basis

Utilisation of the IPO proceeds

The proceeds raised from the PowerGrid InvIT IPO would be used for the following:

• To provide loans to the existing portfolio so that the debts can be repaid or prepaid, including accrued interest, availed by the Initial Portfolio Assets 
• To pay off the accrued interest on outstanding debt
• For general corporate purposes

Strengths of PowerGrid InvIT

Here are some points that show the potential and strengths:

• PowerGrid holds a 51% stake in the InvIT and provides a solid lineage to the fund
• The Initial Portfolio Assets consist of generation linked assets, grid strengthening links, and assets connected with inter-regional power flow. It meets the demand and supply of electricity in major states
• The cash flow of the InvIT has been consistent over the years and has low risks
• Having the support of the government, the company operates within an established regulatory framework
• Since the company deals in electricity transmission, it operates a critical infrastructure need of the company with a low chance of loss

Objectives of PowerGrid InvIT

• By utilising non-transmission revenues, the company aims to capitalise on value-linked growth
• The investment manager of the InvIT aims to diversify the portfolio of assets and use debt efficiently to maintain a positive cash flow, presently and in the future
• The company wants to develop a focused model. This would increase the efficiency of operation and production and yield enhanced returns

Financials of PowerGrid InvIT

PowerGrid InvIT has seen consistent growth in its profits over the last few years. This growth is supported by the corresponding growth in revenue too. In the first 9 mth of the FY 2020-2021, i.e. as of 31st Dec 2020, its revenue stood at Rs 992.3 cr while its profit was Rs 337.14 cr. The financial portfolio of PowerGrid InvIT over the last 3 financial years is as follows:

Risks of PowerGrid InvIT IPO

While the IPO is creating excitement among investors, here are some risks that you should look out for:

• PowerGrid InvIT IPO would be the first time where a PSU operating in the power sector is monetising its assets through InvIT. Thus, investors would not be able to compare the IPO with other listed peers
• The NAV of the InvIT has not been disclosed. Investors, therefore, cannot compare the NAV with other InvITs
• The price at which the stock would trade once it is listed on the stock exchange is not specific

The IPO is expected to open with a lot of investors subscribing to it. If you also want to invest in the PowerGrid InvIT IPO, do your homework and then apply.