NHPC, India's biggest hydroelectric power generator, opened for subscription. The issue received good response on the first day itself and was subscribed fully within five minutes.
As per the data available on the NSE website, the NHPC IPO has already been subscribed 3.59 times so far. It received bids for more than 601 crore shares as against the issue size of 167.73 crore shares. The issue closes on August 12, 2009.
Till August 7, qualified institutional investors were the main supporters to the issue with their portion being oversubscribed 6 times.
The price band has been fixed at Rs 30-36 per equity share of face value Rs 10 each and the company will garner around Rs 5,032-6,039 crore from the issue.
Should you subscribe?
Moneycontrol conducted a poll to check if investors must apply for the public issue or not (see complete poll results on page 2). Most brokerages and market analysts believe that this is a good buy. SP Tulsian of sptulsian.com says, "It has always seen that government IPO, leaves enough scope for prospective investors to make money and this can be expected from NHPC IPO as well."
Brokerage house IndiaInfoline agrees and recommends a 'subscribe', "NHPC’s operational performance has been amongst the best in the industry with its availability index always beating the benchmark. This coupled with a robust financial performance, with a core RoE of over 20%, places it better than many of its listed peers. India Infoline believes NHPC is in a sweet spot to capitalize on the growth opportunity in the power sector. And expect NHPC’s earnings to witness an 18% CAGR over FY09-12, recommend Subscribe."
As for the price, SMC Global says that it is recommended to apply in IPO even at the upper band of Rs 36. (Get all brokerage reports in table 1)
On the other hand, CLSA feels valuations are demanding at Rs 36 per share, reports CNBC-TV18. "We see NTPC as a far better play in the power sector. Return on Equity is inferior to NTPC and Power Grid."
Sanju Verma, CEO- Institutional Business, Proactive Universal Group, also says investors that can avoid NHPC from a valuation perspective. "NHPC at 21 times forward earnings was at Rs 36 per share. Moreover, NTPC’s return on equity would always be 7% higher than NHPC".
Table 1: Read All Brokerage Houses' Reports on NHPC IPO
Table 2: Moneycontrol broker poll (* brokerages' views)
|Experts/ Brokerage||Poll Result||Experts/Brokerage views|
|RS Iyer (KR Choksey Sec)||Apply||NHPC has launched the IPO at reasonable price of Rs 36 a share and overall, the issue is good. People should subscribe to the issue. Indian needs huge infrastructure in place and this company is also a part of it. Power projects require 4-5 years for completion. So people should apply the issue with short to long term view.|
|SP Tulsian (investment advisor)||Apply||It has always seen that government IPO, leaves enough scope for prospective investors to make money and this can be expected from NHPC IPO as well.|
|Sharekhan*||Long term||NHPC is aiming to become a 10,000 MW plus company, in the near future in hydro space, which is considered quite respectable. The company will be a significant player in Hydro Power and would be PSU like NTPC in this sector. Traditionally, PSU IPOs have always rewarded the shareholders. Going by the financials, fundamentals and track record, it is recommended to apply in IPO even at the upper band of Rs 36.The issue is priced between 1.7x-2x post-money book value that is at a discount to the listed utilities in the space (for instance, JP Hydro trades at 3.7x FY2009 book value). This discount is justified on account of the lower return on equity (RoE) of NHPC and the higher risk of delays in the execution of its projects. Importantly, NHPC’s lower RoE is attributable to the higher capital work in progress, which results in lower component of equity which the company earns its returns on. Sharekhan feels NHPC offers long term value to the investors.|
|India Infoline*||Apply||NHPC’s operational performance has been amongst the best in the industry with its availability index always beating the benchmark. This coupled with a robust financial performance, with a core RoE of over 20%, places it better than many of its listed peers. India Infoline believes NHPC is in a sweet spot to capitalize on the growth opportunity in the power sector. And expect NHPC’s earnings to witness an 18% CAGR over FY09-12, recommend Subscribe.|
|Bonanza*||Long term||The business model of NHPC is robust. There is visibility in Power sector and significant expansion at NHPC. The long term investors can apply for the shares. The response for Adani Power indicates that there is potential for listing gains also.|
|SPA Securities*||Apply||At upper price band of Rs 36, the company is valued at a P/E of 32.4x and P/BV of 1.8x its FY09 post-issue earnings of Rs 1.1 per share. On P/E basis, it may appear expensive. However, it is due to many of its projects being under construction and hence they do not contribute to earnings currently. Based on post issue P/BV it is available at a discount compared to its peers, which are trading at > 3x compared with 1.8x for NHPC on upper band. SPA Securities therefore recommends Subscribe to the issue.|
|SMC Global*||Apply||Going by the financials, the stock is trading at a P/BV of Rs 2 for its book value of Rs 16.45 for FY09, which is lower when compared with the peers. Further, looking at the fundamentals and track record, it is recommended to apply in IPO even at the upper band of Rs 36.|
|Angel Broking*||Apply||Going ahead, the company’s growth to be driven by its capacity addition and favourable dynamics for the domestic Power Sector. Though, Angel Broking believes that certain amount of discount is justified on account of the company’s lower RoE and risks of delays in the execution of projects, considering valuation of its peers, the company is available at a steep discount to its peers. Angel has valued NHPC at Rs43/share, considering a target P/BV multiple of 2.1x FY2011E BV (a 10% discount to NTPC target P/BV multiple of 2.3x FY2011E). Moreover, on post issue valuations, Angel believes that the IPO is also priced at a considerable discount to listed Hydro power utility peer, JP Hydro, which is trading at around 3x FY2011E BV and has operational capacity of mere 300MW. Angel recommends Subscribe to the IPO, as believes that the company has good long-term growth prospects.|
|Emkay Global Financial Services*||Apply||NHPC's IPO pricing band between Rs 30-Rs 36 would make its valuations (P/B) at par with NTPC when adjusted for RoEs at the upper end of its band. However, given the inherent interest in the power sector offerings we believe that there are larger chances of gains on listing. Emkay recommends subscribe for listing gains.|
|Networth Stock Broking*||Apply||Networth believes that NHPC is well placed to exploit the untapped hydro power potential of 1,47,774 MW as government will put more thrust on green energy to reduce the dependence on non renewable sources of energy. At the upper band of Rs 36, the company will be available at 2x its book value of Rs 16. Comparing to peers; it trades at a reasonable discount. Hence, Networth recommends investors to Subscribe to the issue.|
|Reliance Money*||Apply||At the price band, the issue is priced at price to book value of 1.9x-2.1x post-dilution which is at a sizeable discount comparing its peers. However, NHPC's reported RoNW seems lower at 6.8% (attributable to the higher capital work in progress), as the company plans further investments in creating assets. Considering the demand supply scenario, the power space stands clear for strong growth momentum going ahead. NHPC is placed in an admirable position to capitalize the situation with its strong operational efficiency and various MoU's/JV's in place. Hence, with long term growth prospects in view, Reliance Money recommends Subscribe to the issue of NHPC.|
Continued on the next page...
Nilesh Shah of Envision Capital said the valuations were not particularly attractive. There has been fair amount of investor interest particularly in the power generation sector and given the kind of response which Adani Power has received. “The NHPC IPO will also receive similar response. Secondly investors always have been able to make money on PSU IPOs. So if the market momentum sustains, at the time of listing there could be short-term gains to be made. But otherwise purely from a fundamental perspective, over the next 12-18 months the IPO looks fairly valued.”
The issue comprised a fresh issue of up to 1,11,82,49,343 equity shares by NHPC and an offer for sale of 55,91,24,672 equity shares by the President of India acting through the Ministry of Power, Government of India. The issue comprised a net issue to the public of 1,63,54,39,665 equity shares and a reservation of 4,19,34,350 equity sharess for subscription by eligible employees at the issue price.
The issue shall constitute 13.64% of the post-issue capital of NHPC. After the issue, the shareholding of the President of India shall be approximately 86.36% of the post-issue paid-up equity share capital of the company.
NHPC will raise around Rs 6,038.55 crore from the issue at Rs 36/share, a higher price band. Out of which, the government will receive Rs 2,012.85 crore and will be used for infrastructure projects. The rest of the amount i.e. Rs 4,025.7 crore , the company will use for its power projects.
The proceeds of the fresh issue (after deducting the proportionate underwriting and issue management fees, selling commissions and other expenses associated with the fresh issue) will use to part finance the construction and
development costs of certain of projects, namely, Subansiri Lower, Uri – II, Chamera - III, Parbati – III, Nimoo Bazgo, Chutak, and Teesta Low Dam - IV.
The issue has been graded by ICRA and has been assigned a grade of 3/5 indicating average fundamentals.
The equity shares offered through this issue are proposed to be listed on the BSE and the NSE. Enam Securities Private Limited, Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited are the book running lead managers to the issue. Karvy Computershare Private Limited is the registrar.
The company has reported net sales of Rs 2,923 crore and net profit of Rs 1,129.80 crore for the period ended March 31, 2009.