PowerGrid InvIT IPO opens tomorrow: Stable financials, healthy payouts; should you subscribe

The InvIT is sponsored by maharatna PSU, Power Grid Corporation of India, a Sensex listed firm.

PowerGrid Infrastructure Investment Trust (InvIT) IPO will open for subscription tomorrow, making it the first InvIT to be sponsored by a state-run firm. PowerGrid InvIT is looking to raise Rs 7,735 crore through the issue which will include a fresh issue as well as an offer for sale (OFS) of existing units. PowerGrid InvIT would become only the third InvIT to be listed on the bourses after IndiaGrid Trust and IRB InvIT, both trading on BSE and NSE since 2017. 

Issue priced at Rs 99-100 per unit

The InvIT is sponsored by Maharatna PSU, Power Grid Corporation of India, a Sensex listed firm. The trust will be raising Rs 7,735 crore through the issue, of which Rs 4,993 crore will be a fresh issue while the remaining Rs 2,741 crore will be an OFS. Units of PowerGrid InvIT will be sold in a price band of Rs 99-100 per unit, in a bid lot of 1,100 units per lot. This would translate to a minimum investment of Rs 1.1 lakh per investor. The issue has been reserved 75% for institutional investors and the remaining 25% for non-institutional investors. 

The Initial Portfolio Assets of PowerGrid InvIT comprises five power transmission projects located across five states of India. The initial portfolio assets comprise PowerGrid Vizag Transmission, PowerGrid Kala Amb Transmission Limited, PowerGrid Parli Transmission Limited, PowerGrid Warora Transmission Limited, and PowerGrid Jabalpur Transmission Limited. PowerGrid InvIT has been given a credit rating of AAA/Stable by domestic rating agencies ICRA, CARE Ratings, and CRISIL Ratings. 

Consistent cash flows, 90% payouts

“The transmission charges being contracted for 35 years result in minimal price risk arising from transmission charge resetting, which provides stability, consistent cash flows and long term visibility,” Axis Securities said in a note. Meanwhile, analysts at Choice Broking believe that apart from consistent and stable cash flows from assets with long term visibility, low counterparty risks, strong financial position, and government backing for PowerGrid InvIT are some of the positives to look at. Investors can also look forward to healthy payouts in InvITs. PowerGrid InvIT intends to distribute at least 90% of the net available cash to the unitholders once at least every quarter in every financial year.

The offer is priced at around a 3.5x multiple on the book value, according to GEPL Capital said in a note. “Investors can expect a pre-tax yield of 9 to 11% based on the utilization of funds to repay the SPV level debt,” they added. However, PGInvIT has not disclosed the NAV, thus the valuation and its benchmarking with the listed peer cannot be ascertained, analysts at Choice Broking said while pinning a ‘Subscribe with a long term view’ rating on the InvIT IPO. Similarly, GEPL Capital is advising investors to subscribe to the issue. 

IRB Trust InvIT and India Grid Trust InvIT, the already listed similar assets have taken divergent paths. While IRB Trust is trading at Rs 54.5 per unit, down 44% from its issue price, IndiGrid Trust InvIT is quoting a price of Rs 128 per unit, up from its issue price of Rs 100 per unit.