Mumbai: The offer for sale (OFS) of shares for Power Finance Corp. Ltd (PFC), in which the government plans to sell 5% of its stake or about 6.6 crore shares, opened on Monday.

The floor price has been fixed at 254. The application or bidding in an OFS happens through the auction route, and no bids can be put at a price below the floor price.

Retail investors have an upper hand in this OFS as they will be allotted shares at a discount of 5% to the cut-off price. If you are an individual investor, your bid will be classified in the retail category if the total value of all the bids across exchanges is not more than 2 lakh.

Should you invest?

The OFS is at around 3.9% discount to PFC’s share price of 258 at 10.45am. Assuming that the cutoff price is the same as the offer price, retail investors will get shares allotted at 241.3 per share. If the market price remains unchanged, then you get an immediate gain of 6.9%. The price values the company at around one time its book value.

While the pricing is attractive, one has to consider more than just immediate gains, which is also dependent on the current market conditions.

This is a government company primarily in the business of power financing. The new government has shown dedicated focus in improving the power sector in the country with the objective of providing power to all within the next few years. Given this push, PFC will be a relevant company over the next few years as the economy revives. State electricity boards, power equipment manufacturers and power utilities are companies which will look for funding from PFC. As the distribution of power improves, these companies are expected to grow their earnings and this will benefit PFC as well.

However, a purchase of PFC shares is best seen as a long-term investment. You should buy the shares with at least a five-year time horizon. The government will take at least a few more years to reach its objective of “power for all" and investors will benefit the most if they remain invested through this period rather than looking for quick profits.

Invest in the OFS only if you want to gain from the expected discount from the current market price (roughly 6.9% at current price). If you don’t get the opportunity to apply today, you can accumulate from the secondary market as well.

How can you invest?

To participate in an OFS, you need to have a demat account and a trading account. You can place an order directly with your broker either online or offline. The offer has to be made against cash and you will not be able to take leverage or have a margin with your broker for this issue. Transaction charges and securities transaction tax are applicable, as it would be for regular equity trades made through your broker.

Retail investors have the option to put in the bid at the cut-off price, which means shares will get allotted automatically at the cut-off price (determined according to the bids received in the non-retail category) rather than the investor having to track the auction and alter price accordingly through the day. Retail bids received below the cut-off will be rejected.

Keep in mind that 20% is reserved for retail investors and the offer is open only for today between 9:15am and 3:30pm.

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