Should You Subscribe to the PowerGrid InvIT IPO of Rs 7,735 CR That Opens Today?
The Rs 7,735 crore IPO of PowerGrid Infrastructure Investment Trust (InvIT) is going to open for public bidding this Thursday and will be closed on May 3.
According to most analysts, investors should consider subscribing to the issue because of its offering prospects of lucrative and yielding consistently. For investors who are looking for a 9-12% yield arising from stable cash flow, the issue is a good opportunity.
The company management says that the InvIT is most probably going to give distributable cash flow at an average of Rs 1,150 crore over the coming 3 years. This, according to analysts, would hint at an 11% cash flow yield.
Rupesh Sankhe of Edelweiss Securities said, “The product offers stability in cash flow, low counterparty risks, strong lineage of Power Grid Corporation and growth from future acquisition of projects. This coupled with replacement of Power Grid Corporation debt via IPO proceeds implies the InvIT will start out as debt-free.”
Sterlite Power-sponsored IndiGrid is trading at a 9% yield with a 9% premium to its NAV value. PowerGrid InvIT is available at 11% yield and a 1% premium to its NAV value at the upper price bandwidth.
It is priced in the Rs 99-100 band. It comprises fresh issues of units worth Rs 4,993.48 crore and the remaining is an offer for sale. The InvIT will use the proceeds to provide loans for the repayment or pre-payment of debt.
The InvIT has gotten a provisional credit rating of AAA (Stable), AAA (Is) Stable and provisional AAA/Stable by ICRA, CARE Ratings and CRISIL Ratings.
“The offer is priced at around 3.5 times the book value. Investors can expect a pre-tax yield of 9 to 11 per cent based on the utilization of funds to repay the SPV level debt,” said analysts at GEPL Capital, who assigned a ‘subscribe’ rating to the issue. An important feature of the InvIT is its ability to produce consistent cash flows owing to long tenure contracts, and headroom for growth given potential to lever the balance sheet and acquire more assets from PowerGrid. The management has also mentioned a strong pipeline of projects that can be monetized by the InvIT.” said analysts.