India Grid Trust IPO opens: This brokerage house has given a Subscribe rating, here is why

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Updated: May 17, 2017 2:02:00 PM

India Grid Trust initial share-sale offer, which opened on Wednesday, garnered Rs 1,012 cr from anchor investors.

India Grid Trust initial share-sale offer, which opened on Wednesday, garnered Rs 1,012 cr from anchor investors.India Grid Trust initial share sale offer opened on Wednesday a day after it garnered Rs 1,012 cr from anchor investors. Deutsche Global Infrastructure Fund, Credit Suisse (Singapore), Reliance Nippon Life Insurance Company, Copthall Mauritius Investment and Edelweiss Tokio Life Insurance Company were among the anchor investors.

IndiGrid was established in Oct, 2016 by Sterlite Power Grid Ventures Limited (Sponsor) and is registered with SEBI pursuant to the InvIT Regulations. It has allotted 10.12 crore units on an average price of Rs 100 to 19 anchor investors for a sum of Rs 1,012.44 crore. The company plans to raise Rs 2,250 crore through its initial share-sale offer and has a price band of Rs 98-100 per unit. Morgan Stanley India, Citigroup Global Markets India and Edelweiss Financial Services are the lead managers to the issue.

Brokerage House Angel Broking has recommended a ‘Subscribe’ rating on the issue. Below are the reasons behind the ‘Subscribe’ rating:

1. Stable cash flows from assets with minimal counter party risks: Revenues are derived out of contracted tariffs under long-term contracts (up to 35 years) from assets with low operating and maintenance costs. Payment securities in the form of a revolving letter of credit, a surcharge of 1.25% for late payments and lack of alternate power infrastructure deters beneficiaries from defaulting. This mechanism diversifies counter party risks, ensures a stable cash flow independent of asset utilization and provides payment security.

2. Strong financial position: IndiGrid has been given a Corporate Credit Rating AAA/Stable by CRISIL, ‘IND AAA’/Stable by India Ratings and ‘IrAAA’ with stable outlook by ICRA. Following utilisation of the issue proceeds, debt to equity will be below 49% (against industry standards 70%) as prescribed by the InvIT Regulations. IndiGrid expects that low indebtedness will provide the ability to finance the growth of business without substantial dilution to Unit holders in the near future and ensure stable distributions.

3. IndiGrid enjoys the benefit of ROFO Deed (Right of First Offer) with Sponsor’s eight inter-state power transmission projects, with transmission network of 21 power transmission lines of around 4,831 ckms and five substations, and transformation capacity of 6,630 MVA. Under the ROFO Deed or otherwise, any potential acquisitions of power transmission projects will be assessed for their suitability with investment mandate and is subject to mutual agreement between the Sponsor and the Investment Manager on behalf of IndiGrid, as well as approval by Unit holders (2/3 majority).

4. Ownership and location of assets: Each of the Initial Portfolio Assets is located in strategically important areas for electricity transmission connectivity, delivering power from generating centers to load centers to meet inter-regional power deficits and developing alternate lines may be challenging due to the terrain, challenges in obtaining rights of way, limited corridors and high construction costs. This is advantageous for sponsor as it can capitalize the opportunities to increase capacity through upgrading existing corridor.

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