Face Value: 10

Price Range: 44 – 52 per share

Minimum Amount: 5500 - 6500

Issue Amount: . 25.25 bn– 29.84 bn

Driven by industrial and services sectors, the Indian economy is growing at a fast pace of 8-9%. In contrast, power crisis has long been the bane of the country and the current situation, with power deficit of ~10% and peak power deficit of ~14%, merits serious attention. Realizing the magnitude of the crisis GOI has developed a national electricity policy, which aims at accelerating the development of the power sector through the generation of additional power, in order to provide for establishment of infrastructure to increase the amount of power generated. According to the Central Electricity Authority (CEA) estimates India is likely to add ~78,577 MW in generation capacity in the Eleventh Plan.

PGCIL, a mini-ratna enterprise promoted by the Government of India, is the principle owner and operator of inter-state and inter-regional power transmission capacity in India. It was formed by the government based on the recommendation of Rajadhyaksha Committee on Power Sector Reforms (1980). The company commenced its operation in 1992 and is responsible for planning, executing, owning, operating and maintaining the high voltage transmission systems in the country. PGCIL owns and operates 61,875 circuit kms of electrical transmission lines. PGCIL transmitted ~45% of all the power generated in India in FY07. As on June 30th 2007, the total inter-regional transmission capacity of PGCIL was 14,100MW. Moreover, PGCIL has leveraged its strengths in transmission segment to diversify into consultancy business for transmission and distribution related projects in India (APDRP and RGGVY). Further PGCIL has also diversified into telecom business by laying optical fiber along with its transmission towers across the country.

The net proceeds of the issue will be utilized for PGCIL’s 15 identified transmission projects. These projects worth INR 127 bn are proposed to be funded with a debt-equity ratio of 70:30 in accordance with CERC norms. The equity component of the identified projects is to be funded by a combination of internal accruals of the company and the proceeds of the fresh issue. The identified projects include those for strengthening of existing transmission lines or grids, projects for establishing new transmission lines connecting new generating plants, and one project for the implementation of the National Load Dispatch Centre (NLDC).

On the post issue basis, the stock is available at a price earning of 15.88 x on lower band (44) and at 18.77 x on higher band (55). The company operates as one of the chief agencies for planning and developing the transmission and distribution system in India and based on the Inter-regional transmission capacity plan laid down by the government in the 11th Five year plan, there lies huge growth opportunities for the company. We recommend, “Subscribe”, for issue of Power Grid Corporation of India Ltd. We expect the stock to have an upside of ~15 % from the upper end of the price band (Target 63)

• capital investment requirement and long gestation period,
• Funding risk since expansion plans are substantial,
• Risk of unfavorable regulations and competition from new players.