NHPC IPO band seen at Rs31-36

NHPC IPO band seen at Rs31-36
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First Published: Thu, Aug 06 2009. 09 15 PM IST
Updated: Thu, Aug 06 2009. 09 15 PM IST
Mumbai: State-owned hydropower producer NHPC Ltd will sell 1.6 billion shares starting Friday and analysts are recommending that people buy the shares and sell them as soon as the firm’s stock lists on the exchange.
“We expect it to list at a premium on account of the overwhelming response to the power sector at present. Subscribe for listing gains,” wrote Rupa Shah, an analyst at brokerage Prabhudas Lilladher Pvt. Ltd in a 4 August note.
NHPC’s initial share sale comes soon after an initial public offering by Adani Power Ltd raised Rs3,000 crore. Adani got bids for 22 times the number of shares it had on offer and analysts say this indicates the appetite for shares of power firms.
NHPC has set the sale price in the band of Rs31-36 a share. If the shares are sold at the upper end of the band, the firm will net Rs6,000 crore.
This share sale is part divestment from the government, and part expansion of equity. After the sale, the government’s stake in the expanded shareholding base of the firm will come down to 86% from 100%. The offer to sell shares closes on 12 August.
UK-based research house Noble estimates the fair value to be Rs31 a share, taking into account NHPC’s government links. “Optimists can justify buying these shares at the lower end of the price band on the back of this company’s governmental support and contacts,” wrote analyst Bhargav Buddhadev in a 3 August note.
Analysts derived these valuations by computing the future cash flows of the company and using a measure called the price to book value or P/BV. This is is the ratio of a firm’s market value to its book value, which is the net worth—the sum of equity and free reserves—of a company. For NHPC, analysts have estimated this multiple to vary between 1.7 and 2 times the fiscal 2010 book value.
In terms of valuations, “the issue is priced....at a discount to the listed utilities in the space”, said a 3 August note from Mumbai-based brokerage Sharekhan Ltd.
NTPC Ltd, the largest power producer in the country, has a P/BV of 3 while Jaiprakash Hydro-Power Ltd, the much smaller and only other listed hydropower producer in India, trades at a P/BV of 3.7.
Of the Rs6,000 crore NHPC hopes to raise at the maximum price of Rs36, a third would go to the Union government. The power producer plans to use the other Rs4,000 crore to part-finance some of its projects. In the red herring prospectus, NHPC has listed seven projects under construction with a total cost of Rs14,000 crore. NHPC currently has a capacity of 5,175MW and these seven projects will add another 3,240MW.
Despite the almost universal thumbs up to the issue, analysts have also raised some questions about NHPC’s performance. For one, there have been delays in the execution of many projects in the last one year. According to the Nobel note, “More than 50% of projects are running behind the commissioning schedule specified by the CCEA (cabinet committee on economic affairs) with an average delay of nine months.”
Second, the biggest project of the firm, called the Subansiri Lower, has witnessed long delays because of environmental problems and border disputes between Arunachal Pradesh and Assam. This project will add 2,000MW capacity and thus accounts for almost two-thirds of the projects for which funds are being raised.
Still, given the demand for power stocks, analysts rate NHPC a buy. Power stocks have gained sharply riding on the general economic turnaround this year. Since 1 January, the Bombay Stock Exchange’s power index has gained 59.93% compared with 60.81% for the benchmark 30-stock Sensex.
After Adani and NHPC, Indiabulls Power Ltd said recently it was planning to sell shares to the public. Rural Electrification Corp. Ltd, which went public last year, is planning to raise more equity.
According to the Central Electricity Authority, peak-hour power shortage in Indian will grow to 12.6% by March.
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First Published: Thu, Aug 06 2009. 09 15 PM IST