This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]
Power Grid Corporation of India Limited (PGCIL), a ‘Navratna’ company and the Central Transmission Utility (CTU) of the country, is coming out with its second follow-on public offer (FPO). The issue will open for subscription today, December 3 and will get closed for the institutional investors on December 5 and for all other investors, including the retail investors and its employees on December 6.
Price Band & 5% Discount – The company has set the price band between Rs. 85 to Rs. 90 and has also decided to offer a 5% discount to the retail investors and the employees of the company. If the price gets fixed at Rs. 90, the retail investors will get the shares at Rs. 85.50 per share.
Lot Size, Minimum & Maximum Investment – With a lot size of 150 shares and the offer price of Rs. 85.50 per share, minimum investment required stands at Rs. 12,825. A retail investor may apply for a maximum of 2,250 shares in the offer i.e. a maximum investment of Rs. 1,92,375.
Shares on Offer – The company is going to issue about 78.71 crore shares in the offer, constituting 17% of the company’s existing paid up capital. This comprises a fresh issue of 60.19 crore shares and simultaneous disinvestment of 18.52 crore shares by the Government of India. After the stake sale, the Government’s holding in PowerGrid will come down to 57.89% from the current 69.42%.
35% Issue Reserved for Retail Investors – There are three categories of investors – Qualified Institutional Bidders (QIBs), Non-Institutional Bidders (NIBs) and the retail investors. 50% of the issue is reserved for the QIBs, 15% for the NIBs and the remaining 35% for the retail investors. 30 lakh shares have been reserved for the employees of the company.
Historical Price Movement – Power Grid launched its IPO in October 2007 and its first FPO in November 2010. Price band set for the current FPO is absolutely same as it was offered in its first FPO. Since then, its price has been moving in a limited range, touching a high of Rs. 124.70 and a low of Rs. 86.55.
But, during most of this time period, it has remained in a very tight price range of Rs. 95 to Rs. 115. During the same time, the fundamentals of the company never deteriorated, as it has been the case with many other public sector enterprises.
This FPO has been an overhang on the company’s price movement in the recent past. Despite a good performance and improved profitability shown by the company, its price has fallen from Rs. 110-115 to Rs. 93-98 in the last few months.
The company is to invest Rs. 30,000 crore in the 12th Plan and this FPO would help the company to partially fund its ongoing projects.
Power Grid is a defensive stock to buy in the power sector with extremely attractive valuations. Net Profit of the company grew at 22% compounded annually between financial years 2007-08 and 2012-13. At the current price of Rs 93.60, the stock trades at 10.05 times its trailing twelve months earnings per share and 1.64 times its book value.
I think the offer price of the company in the FPO @ Rs. 85.50 is extremely attractive and has the potential to provide around 30-50% returns in the next one to two years time frame. Personally, I’ll subscribe to the issue and advise my clients as well to invest in this offer.
Hi Shiv!
Who will get the HNI portion (subscribed only 12%) of the shares- retail, employees or
QIB’s (assuming the retail & employees portion exceeds 100% ). Also if the employee portion remains under subscribed, who will get their shares?
Any idea at what price maximum bids have come in and what is likely to be the cut off?
Also my browser is refusing to open the links posted by you above for the yields (reported attack site). Can you suggest alternate links for the same?
Hi Simple,
Non-institutional investors’ portion is still open for subscription and I am quite confident that it will not remain under-subscribed. I think it should get more oversubscribed than the retail investors’ category.
As per the language of the prospectus – “Any unsubscribed portion in any reserved category shall be added to the Net Offer to the public.” and will be allotted “on a proportionate basis”.
Maximum bids have come in at Rs. 85 as of now, but I think it will be set at Rs. 90.
Here you have alternate links:
8.83% G-Sec – http://www.bloomberg.com/quote/GIND10YR:IND
7.16% G-Sec – http://www.investing.com/rates-bonds/india-10-year-bond-yield
Thank you for your reply and for the links. Which is the benchmark yield as of now?
Looking forward to your analysis for this issue:
http://www.nseindia.com/products/content/equities/ipos/debt_ipo_current_iifclt3.htm
You are welcome Simple !!
7.16% bond is the benchmark G-Sec as of now. I’ll cover the IIFCL issue in a day or two.
Can you post the links to track the daily charts of both the 7.16% & the 8.83% G-sec yields
Here you have the links Vivek:
https://www.ccilindia.com/OMHome.aspx
https://www.ccilindia.com/OMYTMAdv.aspx?ISMT_IDNT=07.16%20GS%202023&Chart=YTM
https://www.ccilindia.com/OMYTMAdv.aspx?ISMT_IDNT=08.83%20GS%202023&Chart=YTM
Hi Shiv,
(I have poste this questions on your HUDCO tax free bond article as well. Sorry for being repeitive)
I have heard from people that one should invest in Bonds only with a sizeable investment amount like 4-5 Lakhs. Is it correct?
How much sense does it make for a small investor with investment amount of say 15000-20000 to invest in Bonds like HUDCO or NTPC? Would it be better to invest in Power Grid FPO with this much of investment amount?
This is kind of dilemma which I am sure many small investors with limited investable amount face always. Since for small investors its always a either-or situation between various investment options.
your take on this please.
Thanks,
Pratyush
Hi Pratyush,
I’ve expressed my views there. I hope it satisfies you.
Great article,good job sir.
Thanks a lot Ansuman !!
Day 2 (December 4) subscription figures:
Category I – 78.95 crore shares as against 39.20 crore shares reserved – 2.01 times subscribed
Category II – 2,00,250 shares as against 11.76 crore shares reserved – 0.00 times subscribed
Category III – 4.33 crore shares as against 27.44 crore shares reserved – 0.16 times subscribed
Category IV – Rs. 4,98,000 as against 30 lakh shares reserved – 0.17 times subscribed
Total Subscription – 83.35 crore shares as against 78.71 crore shares on offer – 1.06 times subscribed
Huge investments will start pouring in from tomorrow. Just tighten your seat belts.
Hi,
I am having ICICIDirect account. How can i purchase a lot(150 shares)? If i try to buy it now, i have to purchase at market price or is it at discounted price as described above (85.5)?
Please help.
Thanks,
Uday
Hi Uday,
Just log in to your ICICI Direct online A/c., visit the IPO section. The FPO is still open and you can apply for Power Grid shares at Rs. 85.50 (Rs. 90 – Discount of Rs. 4.50).
Thanks for your inputs Shiv.
As it is oversubscribed, can i buy now? If i buy, is it based on Lottery or guaranteed allotment of shares?
Thanks,
Uday
Hi Uday,
Yes, you can still subscribe for it. Though the Retail Category portion is still unsubscribed, but the basis of allotment process is different with IPOs/FPOs. It is not on a “First Come First Served” basis.
Here you have the link to check the new Allotment Process:
http://www.onemint.com/2012/12/26/new-basis-of-allotment-explained-with-care-ipo/
One last query shiv,
Can i put a bid price band in between(85-90) and get discount? Say if i bid at 87, will i get a discount(4.5/-) on 87/- =82.5/-?
If i place order at 87, will i get a guaranteed lot or is it based on lottery?
Or it is always better to place an order at 90 for guaranteed lot?
Please suggest.
Thanks,
Uday
Hi Uday,
Discount for the retail investors is Rs. 4.50. If the issue price is fixed at Rs. 90 or any other price, you’ll get Rs. 4.50 as the discount. If you bid at Rs. 87 and the company fixes the issue price at Rs. 90, then you will not get any allotment.
Even if you bid at Rs. 90 and the issue gets oversubscribed multiple times, then also there is no guarantee that you’ll get allotment. There is a probability, albeit small, that you’ll not get allotment.
So, if you are sure about the prospects of the company or its post-listing price, it is always better to invest in IPOs/FPOs at the “Cut-Off” price.
If the same allotment process is followed, everyone will get at least 1 lot right? I was about to apply for 2 lots but later applied for 1 lot only.
Yes, I think so. I expect everyone to get at least 1 lot allotted. I was about to apply for 1 lot each in my family members A/cs., but then decided to apply for 2 lots each.
As per the “All Exchanges Demand graph” on the NSE, most of the bids have come in at 85. Does this graph include the retail bids at 90 (since the net price is 85.5), or are the retail bids shown under 90 rupees?
http://www.nseindia.com/products/content/equities/ipos/ipo_current_pwrgrid.htm
Also can you share the latest & cumulative subscription figures of day 2 especially for Category 4
Hi Vivek,
Retail Investors have applied for 4,32,62,100 Power Grid shares so far, out of which 3,87,56,400 have been applied at the “Cut-Off” price and rest 45,05,700 are “Price Bids”.
3,87,56,400 + 3,73,950 (shares applied by Power Grid employees at “Cut-Off”) = 3,91,30,350
Seventh Tower of the “All Exchanges Demand graph” showing 391.303 lakh shares indicates this figure of 3,91,30,350.
http://www.nseindia.com/products/content/equities/ipos/ipo_current_pwrgrid.htm
http://www.nseindia.com/marketinfo/ipochart/ipochart.jsp?issue=PWRGRIDCUMUEQ&ir=I&cn=C&sd=D&cnlink=N
Can someone give the site from where I can apply online for Powergrid FPO. Thank you.
To apply for Power Grid shares, you need to compulsorily have a Demat A/c. If you have it, then you can apply for it online from your trading A/c. Otherewise it is not possible to apply for it online.
Day 1 (December 3) subscription figures:
Category I – 53.49 crore shares as against 39.20 crore shares reserved – 1.36 times subscribed
Category II – 47,250 shares as against 11.76 crore shares reserved – 0.00 times subscribed
Category III – 0.87 crore shares as against 27.44 crore shares reserved – 0.03 times subscribed
Category IV – Rs. 48,000 as against 30 lakh shares reserved – 0.02 times subscribed
Total Subscription – 54.32 crore shares as against 78.71 crore shares on offer – 0.69 times subscribed
The article below clearly states that the maximum nos of shares which a retail investor can apply for is 2100, but you have mentioned above in your post that it is 2250. Please explain the discrepancy. It should be 2100 only since 2100*90=1,89,000/-. & 2250*90=2,02,500/-.
You seem to have based your calculations to calculate the nos of shares which can be applied for after factoring in a discount of 4.50/- which is clearly wrong.
I have spoken to 2 brokers who are handling this issue & according to them too, it should be 2100 and not 2250.
http://www.business-standard.com/article/markets/powergrid-issue-charges-up-grey-market-113120300847_1.html
The article below clearly states that the maximum nos of shares which a retail investor can apply for is 2100, but you have mentioned above in your post that it is 2250. Please explain the discrepancy. It should be 2100 only since 2100*90=1,89,000/-. & 2250*90=2,02,500/-.
You seem to have based your calculations to calculate the nos of shares which can be applied for after factoring in a discount of 4.50/- which is clearly wrong.
I have spoken to 2 brokers who are handling this issue & according to them too, it should be 2100 and not 2250.
http://www.business-standard.com/article/markets/powergrid-issue-charges-up-grey-market-113120300847_1.html
All these brokers and the correspondents are just not doing their basic research before writing or opening their mouth. Please check the below pasted link and click on the “Issue Details”.
http://puneinvest.com/fpo-power-grid-issue-dec-2013/
Hi Adiya,
Just FYI, I applied for this via my HDFC Securities account. I selected the ASBA Retail option and I marked cut-off price which showed as Rs. 90 and I marked maximum shares under this category which came to 2,250 shares (yes, 2250*90 does not equate to less than Rs. 2,00,000).
When I got my eIPO confirmation in the evening it showed an amount of Rs. 1,92,375, 2,250 shares and the bid price at Rs. 90 (though they have charged me Rs. 85.50).
Therefore, it is 2,250 shares as rightly mentioned by Shiv.
Read Mr. Tulsian’s website. He clearly states the nos of shares is 2100 and not 2250
Then how the HDFC Securities’ portal is allowing retail investors to bid for 2,250 shares ?? It is 2,250 for sure, whatever others are saying it is irrelevant for the investors.
Hi Shiv!
Sorry to bother you again, but I am still a bit confused.
When I am applying for 2250 shares, I have to write a check for 1,92,375 (as also mentioned by you above). Isn’t this price calculated on the basis of 85.50/share after factoring in a discount of 4.50/-.
So doesn’t this automatically imply that my bid price is 90 and net price is 85.50? So isn’t it a bit redundant to write NA under these columns?
Now lets assume the price is fixed at 83 (after factoring in a 4.50/- discount), wont I still be allotted shares at my original net price of 85.50 as also mentioned by you in your reply to my previous query (point 3 in your previous answer)
Would be extremely grateful to you if you would kindly clarify and banish all my doubts once and for all
Thanks in advance
Hi Simple,
If you apply for these shares by selecting “Cut-Off”, then you’ll be allotted shares at a price which is set by the board of the company after the issue gets closed, be it Rs. 90 per share or Rs. 88 per share or Rs. 85 per share or any other price. You’ll also get 5% discount on the price being set.
When you apply for these shares, it is mandatory to do your cheque calculation considering the “Cap Price” of the issue. Here is the extract from the prospectus:
“Retail Individual Investors and Eligible Employees bidding in the Employee Reservation Portion bidding at the Cut-Off Price have to ensure payment at the Cap Price, less Retail Discount or Employee Discount, as applicable, at the time of making a Bid.”
When you are applying for it at the “Cut-Off” price , you are not ‘bidding’ for the price. You need to leave the “Bid Price” and “Net Price” as blank or write NA in those boxes.
Hi Shiv!
Thank you for your reply. My broker today morning refused to accept my application since I wrote “NA” under the 2 columns as advised by you. He challenged me that no broker would accept my application anywhere in the city and told me to again fill the entire form and mention the bid price as 90, net price as 85.5 and also tick the cut off column.
I have decided not to apply for the issue altogether since there is so much confusion and a high chance of my application getting rejected. I will probably invest in HUDCO where I am assured to make a guaranteed return
Sorry for having wasted your time
I checked with my broker. If you check CUTOFF box, their online application automatically fills in price of 90. BUT this does not mean you will get it at 90. It will be assigned at whatever price the FPO comes out finally. so after bidding wars if the price is set at 87 , you will get it at 87 EVEN though you put 90 in the application, by virtue of you checking CUT OFF. if you do not check CUT OFF, then you are actually bidding and naming your price. I hope this clears your doubt. The online application does not allow NA in price box for me either (with CUTOFF checked)
Absolutely Correct !! This is how it happens in the online process.
Thank You Ketki for your guidance and concern in the matter :-). I have submitted my application. Hope to get full allotment
Hi Simple,
Though my logic is correct, just follow your broker & write Rs. 90 as the “Bid Price”, Rs. 4.50 as the discount and Rs. 85.50 as the “Net Price” and ensure that the “Cut-Off” box is ticked.
Took your advice and re-submitted my application.
Thanks!
That’s Great !!
sir can you tell whether this issue is under safety net mechanisim as i has not so far gone through RHP
No Santonu, there is no Safety Net arrangement in Power Grid’s case.
“Our Promoter, our Company, our Directors and the BRLMs have not entered into any buy-back or standby arrangements or any safety net arrangements for purchase of Equity Shares from any person.”
Source: http://www.powergridindia.com/_layouts/PowerGrid/WriteReadData/file/Investors/fpo/Red_Herring_Prospectus.pdf
Can you tell what is meant by “cut-off”?
Cut-Off price is the price at which the board of the company decides to finally issue its shares after the IPO/FPO gets closed. This price can be any price – floor price, upper band price or a price between these two prices. In Power Grid’s case, most likely it would be set at Rs. 90 per share.
Why was my comment deleted?
Which comment has got deleted Simple ? One of your comment is there above.
sorry Shiv. The comment is there above. For a few minutes, it wasn’t being displayed, so I thought it was deleted.
Sure, no issues.
Thank you Shiv for clarifying !
An article here for those looking into investing in powergrid FPO in today’s ET.
http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/psu-stocks-near-52-week-low-as-pgcil-fpo-opens/articleshow/26757642.cms
You are welcome Ketki !!
Hi Shiv!
I am applying for 2250 shares. Can you please tell me what I should fill under these columns in the FPO form:-
1. Bid Price
2. Discount, if any
3. Net Price
4. Cut-Off
According to me, these should be the answers- 90, 4.50, 85.50, tick mark
Am I right?
Also, under the net price column, how do i enter 85.50? Only 4 boxes are provided.
I am sorry for asking such childish questions, but I am very confused
Hi Simple,
For retail investors, it is always advisable to just tick the “Cut-Off” box and leave the rest boxes blank. Whatever price the company finally decides to issue shares at, the retail investor will get the shares at that price.
But if I leave the Bid Price column blank, wont my application get rejected? Also, if my broker wrongly enters the bid price at a value different than the one fixed by the company, wont my application get rejected?
And if i enter the bid price as 90 (the upper band of the price), wont I automatically be allotted shares even if the price is fixed at the lower band or somewhere in between?
On the NSE website, discount has been mentioned as 4.5
Please advise on the same.
Also I have heard that any application by Retail above 1 lac rupees gets reported to the Income Tax Dept. Is it true?
1. If you leave the Bid Price column blank & tick the “Cut-Off” box, your application won’t get rejected.
2. If your broker wrongly enters the bid price at a value different than the one fixed by the company and if the price entered is lower, your application will get rejected. It is better to write “N.A.” in the “Bid Price” column & the “Net Price” column.
3. If you enter the bid price as Rs. 90 and if the price is fixed at the lower band or somewhere in between, then you’ll be allotted the shares at Rs. 90 less retail discount.
4. If you invest Rs. 1 lakh in stocks or ETFs in a year (not only IPOs/FPOs), it gets reported to the I-T department.
Thank You very much Shiv!!! 🙂
No one was able to give me a precise answer to these questions. Thank you so much once again.
Still feeling very apprehensive about writing “NA” under ‘Bid Price’ & ‘Net Price’ columns (since I have never done it before), but will take your advice, trust you and do the same
You are welcome Simple and thanks for your trust !! 🙂
http://content.icicidirect.com/Mailimages/LT_Finance_Pref_Product_Note.pdf
http://content.icicidirect.com/Mailimages/LT_Pref_IM.pdf
It is 5 year compulsory redeemable preferred stock of L&T finance paying 9% dividend yearly. minimum investment is 10L (offered by icici direct)
Hi Ketki,
It is on a private placement basis. Issue opened on October 11th and got closed on the same day itself. Now, ICICI Securities is offering these preference shares to its clients directly in a resale transaction.
Any opinion on “L & T Finance Holding Ltd – Preference Shares” which is closing today ?
Hi Ketki,
I’m not aware of any such issue. Can you please share its link here?
The issue seems to be fully subscribed as valuation is attractive. Main problem of FPO is that experienced traders short sell his allotment just before entering into his DEMAT which may drag the stock price and recovery usually takes time.
Hi Santonu,
Sometimes over-smartness also backfires. Power Grid’s valuations are attractive and it is ripe for a good jump post this FPO. Short selling is not advisable in this counter, if people are doing it with derivatives, it might result in a loss for them. Over-supply of shares post this FPO is the only concern area for me.
Sir your suggestion is appreciated. Even i was benifited by shortselling in cash market not in derivative in earlier FPOs like Tata Steel,PFC,Power Grid ,NMDC. This is the way as follows
1. I know how much allotment is made to me by getting the bank statement before demat entry. Let the day be Monday and share that will be alloted is 100
2. I make an assumption DMAT entry will be by thursday
3. I short sell 100 share in cash market on tuesday and i will get two day time for settlement.
4. I can beifit a lot as stock price in this period is always in down trend if DMAT entry is made really on thursday
5. If demat entry is delayed and stock makes a upward trend , then there will be a great loss as my short sell shares will be auctioned
6. Game i very risky if your assumption on demat entry date proves wrong
I understand this method Santonu, but I don’t think there is a huge scope of sure shot gain. This arbitrage transaction gives you gain when there is huge demand for the stock and it might result in a very muted gains if there is huge selling post listing or there is a lack of demand.