The state-run Rural Electrification Corporation, REC has touched an intraday high/low of 129.90 and Rs 118.75, before closing the day at Rs 120.25, up by Rs 15.25 or 14.52% on the NSE. It traded with volumes of 11,16,71,336 shares and turnover was at Rs 1,364 crore.
Uma Shankar, Chairman, REC said that the company is likely to hold on to their current costs and margins and added that they expect to see continued growth of 25-30%. Shankar said REC will continue to maintain its past CAGR growth going ahead.
In an exclusive interview with CNBC-TV18, Shankar said that their ECB application was with the RBI and that they expect a favourable outcome. He added that they don’t anticipate a rise in the cost of borrowings which currently stands at 6.7%.
Shankar expects the company to have 25-30% profitability in the coming years. He said that REC is expecting business worth Rs 1.35 lakh crore over the next five years and added that higher volumes will ensure that profitability is maintained.
It had come out with an initial public offer of 15.61 crore shares of Rs 10 each and the issue got subscribed by 27.91 tio mes.
Source: Moneycontrol.com
Showing posts with label REC IPO. Show all posts
Showing posts with label REC IPO. Show all posts
Wednesday, March 12, 2008
Tuesday, March 11, 2008
Rural Electr Corp to list on March 12
The state-run Rural Electrification Corporation, REC will list on the bourses with equity shares on Wednesday, March 12, 2008. It has been fixed issue price of Rs 105 per share for its initial public offer of 15.61 crore shares of Rs 10 each. The issue generated a demand for over Rs 45,000 crore and got subscribed by 27.91 times.
The price band was between Rs 90-105 per share. The QIB portion was subscribed 39 times, HNI 27 times and retail 8 times. The employee portion was also fully subscribed demonstrating the interest it has generated.
The issue constitutes approximately 18.18% of the fully diluted post-issue capital of REC. IL & FS Investsmart Securities Limited, ICICI Securities Limited and SBI Capital Markets Limited are the Book Running Lead Managers for the Issue.
The Company proposes to utilize the net proceeds from the fresh issue to augment its capital base to improve its borrowing capacity in order to support the future growth in its assets.
Source: Moneycontrol.com
The price band was between Rs 90-105 per share. The QIB portion was subscribed 39 times, HNI 27 times and retail 8 times. The employee portion was also fully subscribed demonstrating the interest it has generated.
The issue constitutes approximately 18.18% of the fully diluted post-issue capital of REC. IL & FS Investsmart Securities Limited, ICICI Securities Limited and SBI Capital Markets Limited are the Book Running Lead Managers for the Issue.
The Company proposes to utilize the net proceeds from the fresh issue to augment its capital base to improve its borrowing capacity in order to support the future growth in its assets.
Source: Moneycontrol.com
Friday, February 22, 2008
REC IPO subscribed 27.3 times
The IPO of the state-run Rural Electrification Corporation (REC) got subscribed 27.30 times with an overwhelming bidding for 426.2 crore equity shares till 5 pm. The issue closes today for subscription. Bids for 24.08 crore equity shares have received at the cut off price.
The investor confidence in the IPO can be gauged from the response that it has generated across the board. The QIB portion was subscribed by 6.51 times, retail by 0.79 times and HNI 0.75 times till yesterday. Even the employee quota was subscribed 0.71 times on the penultimate day of the IPO.
REC entered the capital markets with a public issue of 156,120,000 Equity Shares of Rs. 10 each through 100% book building process with a price band of Rs 90-Rs 105.
The Issue shall constitute approximately 18.18% of the fully diluted post-issue capital of REC. The Issue closes on February 22, 2008. IL & FS Investsmart Securities Limited, ICICI Securities Limited and SBI Capital Markets Limited are the Book Running Lead Managers for the Issue. The Equity Shares are proposed to be listed on the NSE and the BSE.
The Company proposes to utilize the net proceeds from the fresh issue to augment its capital base to improve its borrowing capacity in order to support the future growth in its assets.
REC is one of the leading public financial institutions in Indian power infrastructure, engaged in the financing and promotion of transmission, distribution and generation projects throughout India.
The government's Eleventh Plan (2008-2012) anticipates a substantial increase in the country's power capacity. The Ministry of Power's data shows that India's power generation system, as on March 31, 2007, had a total installed capacity of 132,330 MW and an additional 78,577MW are required to meet the projected demand during the plan period. Thus, the overall fund requirement by 2012 for the sector has been estimated at a whopping Rs 10,316,000 million.
Source: Moneycontrol.com
The investor confidence in the IPO can be gauged from the response that it has generated across the board. The QIB portion was subscribed by 6.51 times, retail by 0.79 times and HNI 0.75 times till yesterday. Even the employee quota was subscribed 0.71 times on the penultimate day of the IPO.
REC entered the capital markets with a public issue of 156,120,000 Equity Shares of Rs. 10 each through 100% book building process with a price band of Rs 90-Rs 105.
The Issue shall constitute approximately 18.18% of the fully diluted post-issue capital of REC. The Issue closes on February 22, 2008. IL & FS Investsmart Securities Limited, ICICI Securities Limited and SBI Capital Markets Limited are the Book Running Lead Managers for the Issue. The Equity Shares are proposed to be listed on the NSE and the BSE.
The Company proposes to utilize the net proceeds from the fresh issue to augment its capital base to improve its borrowing capacity in order to support the future growth in its assets.
REC is one of the leading public financial institutions in Indian power infrastructure, engaged in the financing and promotion of transmission, distribution and generation projects throughout India.
The government's Eleventh Plan (2008-2012) anticipates a substantial increase in the country's power capacity. The Ministry of Power's data shows that India's power generation system, as on March 31, 2007, had a total installed capacity of 132,330 MW and an additional 78,577MW are required to meet the projected demand during the plan period. Thus, the overall fund requirement by 2012 for the sector has been estimated at a whopping Rs 10,316,000 million.
Source: Moneycontrol.com
Tuesday, February 19, 2008
REC, an issue worth subscribing
Rajesh Jain, Director & CEO at Pranav Securities believes that REC has been offered at a good price. It is excellent pedigree and leaves some upside on the table for investors. It is certainly an issue worth subscribing to, he said.
Jain told CNBC-TV18, “Rural Electrification Corporation, REC is a nice issue. In fact it could undo a lot of the damage that may have happened because of the lower than expected listing of Reliance Power. I personally think REC is on to a great business.
He further added, “There is just one question mark on whether it would continue to have the benefit of cheap money coming in from the tax waver on capital gain bonds. Once you take that bit of a rider out of the issue, it has been offered at a good price. It is excellent pedigree and it leaves enough on the table for investors. It should soon find itself in the same league as an IDFC or a Power Grid, so it is certainly an issue worth subscribing to.”
Source: Moneycontrol.com
Jain told CNBC-TV18, “Rural Electrification Corporation, REC is a nice issue. In fact it could undo a lot of the damage that may have happened because of the lower than expected listing of Reliance Power. I personally think REC is on to a great business.
He further added, “There is just one question mark on whether it would continue to have the benefit of cheap money coming in from the tax waver on capital gain bonds. Once you take that bit of a rider out of the issue, it has been offered at a good price. It is excellent pedigree and it leaves enough on the table for investors. It should soon find itself in the same league as an IDFC or a Power Grid, so it is certainly an issue worth subscribing to.”
Source: Moneycontrol.com
Monday, February 18, 2008
Subscribe to REC IPO
Angel Broking has come out with research report on Rural Electrification Corporation (REC) IPO. They have recommended subscribing to the issue. REC, one of the leading public financial institutions in Indian power infrastructure, proposes to enter the capital markets on February 19, 2008 with a public issue of 156,120,000 equity shares of Rs 10 each through 100% book building process.
Angel Broking report on Rural Electrification Corporation IPO
Substantial funds requirement for Indian Power sector
Rural Electrification Corporation is a leading public financial institution exclusively focused on extending finance to the Indian Power Sector, which, going by the government’s stated intentions, is slated for tremendous growth during the Eleventh Five-year Plan (2007-2012). It is estimated that Rs 10.3 lakh crore of capital would be required to set up the power infrastructure targeted to be added by 2012. Within the available funding sources, the government envisages REC’s share at Rs 59,150 crore at least.
Accordingly, we expect REC to deliver a CAGR growth of 25% in Advances over FY2008-10E. Importantly, REC’s mandate has evolved over the years and it now finances all segments of the Power sector throughout the country. REC’s changing sanction mix corroborates this viz., the private sector borrowers and generation projects comprise an increasing share of sanctions, in line with the present dynamics of the Power sector.
Clear-cut, Profitable business model
REC’s primary source of revenue is interest Income from Power sector lending. Low-cost ‘54EC Bonds’ comprise 45% of its borrowings. REC is expected to deliver NIMs of 3.2-3.4% over FY2008-10E. Given its lean organisational structure, inherently low credit risk and Tax benefit u/s 36(1)(viii), RoAs should sustain at 2% levels.
REC’s leverage cannot exceed 8-9x to maintain AAA credit rating (critical for cost competitiveness). Accordingly, it is expected to deliver RoE of around 16% by FY2010E, which should increase to around 18% at optimum leverage (post FY2010E).
Tax benefits and treatment of deferred tax liability (DTL)
REC is eligible for tax benefit u/s 36(1) (viii) of IT Act, 1961 by creating a special reserve of upto 20% of profits. The company has created DTL in respect of this tax benefit – however, we believe the tax liability is unlikely to crystallize and consider it appropriate to treat the DTL so created (and to be created) as part of equity. Accordingly, we have increased book value by Rs 9.5 (and have assumed the effective Tax rate for FY2008-10E to be 27% for the same reason).
Outlook and Valuation
In the past few months, the Power Sector (on which REC is an indirect play) has seen valuations reaching frothy levels, only to come off recently. Against this backdrop, we believe the REC Issue comes at a reasonable price based on fundamental value, considering the high visibility of credit demand in the Power Finance sector, REC’s strong positioning in the same and its reasonably strong financial performance.
At the upper end of the price band of Rs 105, the stock is available at 1.3x FY2009E Adjusted Book Value of Rs 80.7 and 1.2x FY2010E Adjusted Book Value of Rs 90.5. The valuations compare favorably with its closest peer, PFC, which is trading at 1.8x FY2009E Adjusted Book Value of Rs 104 and 1.6x FY2010E Adjusted Book Value of Rs 117 at the CMP of Rs 185. We believe REC can command upto 1.5x 1-year Forward Adjusted Book Value, implying reasonable upside even at the upper end of the price band. Hence, we recommend subscribe to the issue.
Concerns
Credit offtake falling short of estimates
In the past, the government has often fallen short of targeted capacity addition in its Five-year Plans. The Ninth Plan had targeted a capacity addition of 40,245MW, of which only 47.8% was actually added during the Plan. Similarly, in the Tenth Plan, only 51.5% of the targeted capacity addition of 41,110MW was actually achieved.
The Eleventh Plan has an ambitious targeted capacity addition of 78,577MW, of which 13.7% (10,760MW) is expected to be in the Private sector. Various factors such as delays in environmental clearance, land acquisition, financial closure (on the Equity or Debt front) may result in shortfall in targeted capacity addition, as a result of which loan disbursements for REC may fall short of estimates.
Nonetheless, the environment is more enabling during the Eleventh Plan, driven by Power Sector reforms including enabling regulations such as the Electricity Act, which provide a framework for the private sector to expand viably and for the SEBs to be restructured and corporatised.
Moreover, greater competition from banks or development of deeper bond markets could result in a deteriorating NIM-credit growth trade-off for REC. This may be exacerbated by improving financial profile of Power Sector entities, with greater share of capacity addition moving to the private sector.
Withdrawal of Tax benefits
Withdrawal of capital gains exemption u/s 54EC Income Tax Act will result in REC’s cost of funds gradually increasing by around 100bp as the existing Bonds mature. However, REC does pass on part of the benefit to borrowers by charging concessional rate of interest, which we expect will be discontinued if the section is withdrawn.
Withdrawal of tax exemption u/s 36 (1) (viii) of the Income Tax Act will result in REC’s effective tax rate going up by 6-7%, potentially bringing down sustainable RoEs from about 18% to about 16.5%.
Increase in borrowing / credit (NPA) costs
Competitive pressures may force REC’s spreads below projected levels. Due to the concentrated nature of its Asset Book, major systemic problems in the Power Sector may increase its NPA levels and drastically impact its profits.
Source: Moneycontrol.com
Angel Broking report on Rural Electrification Corporation IPO
Substantial funds requirement for Indian Power sector
Rural Electrification Corporation is a leading public financial institution exclusively focused on extending finance to the Indian Power Sector, which, going by the government’s stated intentions, is slated for tremendous growth during the Eleventh Five-year Plan (2007-2012). It is estimated that Rs 10.3 lakh crore of capital would be required to set up the power infrastructure targeted to be added by 2012. Within the available funding sources, the government envisages REC’s share at Rs 59,150 crore at least.
Accordingly, we expect REC to deliver a CAGR growth of 25% in Advances over FY2008-10E. Importantly, REC’s mandate has evolved over the years and it now finances all segments of the Power sector throughout the country. REC’s changing sanction mix corroborates this viz., the private sector borrowers and generation projects comprise an increasing share of sanctions, in line with the present dynamics of the Power sector.
Clear-cut, Profitable business model
REC’s primary source of revenue is interest Income from Power sector lending. Low-cost ‘54EC Bonds’ comprise 45% of its borrowings. REC is expected to deliver NIMs of 3.2-3.4% over FY2008-10E. Given its lean organisational structure, inherently low credit risk and Tax benefit u/s 36(1)(viii), RoAs should sustain at 2% levels.
REC’s leverage cannot exceed 8-9x to maintain AAA credit rating (critical for cost competitiveness). Accordingly, it is expected to deliver RoE of around 16% by FY2010E, which should increase to around 18% at optimum leverage (post FY2010E).
Tax benefits and treatment of deferred tax liability (DTL)
REC is eligible for tax benefit u/s 36(1) (viii) of IT Act, 1961 by creating a special reserve of upto 20% of profits. The company has created DTL in respect of this tax benefit – however, we believe the tax liability is unlikely to crystallize and consider it appropriate to treat the DTL so created (and to be created) as part of equity. Accordingly, we have increased book value by Rs 9.5 (and have assumed the effective Tax rate for FY2008-10E to be 27% for the same reason).
Outlook and Valuation
In the past few months, the Power Sector (on which REC is an indirect play) has seen valuations reaching frothy levels, only to come off recently. Against this backdrop, we believe the REC Issue comes at a reasonable price based on fundamental value, considering the high visibility of credit demand in the Power Finance sector, REC’s strong positioning in the same and its reasonably strong financial performance.
At the upper end of the price band of Rs 105, the stock is available at 1.3x FY2009E Adjusted Book Value of Rs 80.7 and 1.2x FY2010E Adjusted Book Value of Rs 90.5. The valuations compare favorably with its closest peer, PFC, which is trading at 1.8x FY2009E Adjusted Book Value of Rs 104 and 1.6x FY2010E Adjusted Book Value of Rs 117 at the CMP of Rs 185. We believe REC can command upto 1.5x 1-year Forward Adjusted Book Value, implying reasonable upside even at the upper end of the price band. Hence, we recommend subscribe to the issue.
Concerns
Credit offtake falling short of estimates
In the past, the government has often fallen short of targeted capacity addition in its Five-year Plans. The Ninth Plan had targeted a capacity addition of 40,245MW, of which only 47.8% was actually added during the Plan. Similarly, in the Tenth Plan, only 51.5% of the targeted capacity addition of 41,110MW was actually achieved.
The Eleventh Plan has an ambitious targeted capacity addition of 78,577MW, of which 13.7% (10,760MW) is expected to be in the Private sector. Various factors such as delays in environmental clearance, land acquisition, financial closure (on the Equity or Debt front) may result in shortfall in targeted capacity addition, as a result of which loan disbursements for REC may fall short of estimates.
Nonetheless, the environment is more enabling during the Eleventh Plan, driven by Power Sector reforms including enabling regulations such as the Electricity Act, which provide a framework for the private sector to expand viably and for the SEBs to be restructured and corporatised.
Moreover, greater competition from banks or development of deeper bond markets could result in a deteriorating NIM-credit growth trade-off for REC. This may be exacerbated by improving financial profile of Power Sector entities, with greater share of capacity addition moving to the private sector.
Withdrawal of Tax benefits
Withdrawal of capital gains exemption u/s 54EC Income Tax Act will result in REC’s cost of funds gradually increasing by around 100bp as the existing Bonds mature. However, REC does pass on part of the benefit to borrowers by charging concessional rate of interest, which we expect will be discontinued if the section is withdrawn.
Withdrawal of tax exemption u/s 36 (1) (viii) of the Income Tax Act will result in REC’s effective tax rate going up by 6-7%, potentially bringing down sustainable RoEs from about 18% to about 16.5%.
Increase in borrowing / credit (NPA) costs
Competitive pressures may force REC’s spreads below projected levels. Due to the concentrated nature of its Asset Book, major systemic problems in the Power Sector may increase its NPA levels and drastically impact its profits.
Source: Moneycontrol.com
Subscribe to REC IPO
Angel Broking has come out with research report on Rural Electrification Corporation (REC) IPO. They have recommended subscribing to the issue. REC, one of the leading public financial institutions in Indian power infrastructure, proposes to enter the capital markets on February 19, 2008 with a public issue of 156,120,000 equity shares of Rs 10 each through 100% book building process.
Angel Broking report on Rural Electrification Corporation IPO
Substantial funds requirement for Indian Power sector
Rural Electrification Corporation is a leading public financial institution exclusively focused on extending finance to the Indian Power Sector, which, going by the government’s stated intentions, is slated for tremendous growth during the Eleventh Five-year Plan (2007-2012). It is estimated that Rs 10.3 lakh crore of capital would be required to set up the power infrastructure targeted to be added by 2012. Within the available funding sources, the government envisages REC’s share at Rs 59,150 crore at least.
Accordingly, we expect REC to deliver a CAGR growth of 25% in Advances over FY2008-10E. Importantly, REC’s mandate has evolved over the years and it now finances all segments of the Power sector throughout the country. REC’s changing sanction mix corroborates this viz., the private sector borrowers and generation projects comprise an increasing share of sanctions, in line with the present dynamics of the Power sector.
Clear-cut, Profitable business model
REC’s primary source of revenue is interest Income from Power sector lending. Low-cost ‘54EC Bonds’ comprise 45% of its borrowings. REC is expected to deliver NIMs of 3.2-3.4% over FY2008-10E. Given its lean organisational structure, inherently low credit risk and Tax benefit u/s 36(1)(viii), RoAs should sustain at 2% levels.
REC’s leverage cannot exceed 8-9x to maintain AAA credit rating (critical for cost competitiveness). Accordingly, it is expected to deliver RoE of around 16% by FY2010E, which should increase to around 18% at optimum leverage (post FY2010E).
Tax benefits and treatment of deferred tax liability (DTL)
REC is eligible for tax benefit u/s 36(1) (viii) of IT Act, 1961 by creating a special reserve of upto 20% of profits. The company has created DTL in respect of this tax benefit – however, we believe the tax liability is unlikely to crystallize and consider it appropriate to treat the DTL so created (and to be created) as part of equity. Accordingly, we have increased book value by Rs 9.5 (and have assumed the effective Tax rate for FY2008-10E to be 27% for the same reason).
Outlook and Valuation
In the past few months, the Power Sector (on which REC is an indirect play) has seen valuations reaching frothy levels, only to come off recently. Against this backdrop, we believe the REC Issue comes at a reasonable price based on fundamental value, considering the high visibility of credit demand in the Power Finance sector, REC’s strong positioning in the same and its reasonably strong financial performance.
At the upper end of the price band of Rs 105, the stock is available at 1.3x FY2009E Adjusted Book Value of Rs 80.7 and 1.2x FY2010E Adjusted Book Value of Rs 90.5. The valuations compare favorably with its closest peer, PFC, which is trading at 1.8x FY2009E Adjusted Book Value of Rs 104 and 1.6x FY2010E Adjusted Book Value of Rs 117 at the CMP of Rs 185. We believe REC can command upto 1.5x 1-year Forward Adjusted Book Value, implying reasonable upside even at the upper end of the price band. Hence, we recommend subscribe to the issue.
Concerns
Credit offtake falling short of estimates
In the past, the government has often fallen short of targeted capacity addition in its Five-year Plans. The Ninth Plan had targeted a capacity addition of 40,245MW, of which only 47.8% was actually added during the Plan. Similarly, in the Tenth Plan, only 51.5% of the targeted capacity addition of 41,110MW was actually achieved.
The Eleventh Plan has an ambitious targeted capacity addition of 78,577MW, of which 13.7% (10,760MW) is expected to be in the Private sector. Various factors such as delays in environmental clearance, land acquisition, financial closure (on the Equity or Debt front) may result in shortfall in targeted capacity addition, as a result of which loan disbursements for REC may fall short of estimates.
Nonetheless, the environment is more enabling during the Eleventh Plan, driven by Power Sector reforms including enabling regulations such as the Electricity Act, which provide a framework for the private sector to expand viably and for the SEBs to be restructured and corporatised.
Moreover, greater competition from banks or development of deeper bond markets could result in a deteriorating NIM-credit growth trade-off for REC. This may be exacerbated by improving financial profile of Power Sector entities, with greater share of capacity addition moving to the private sector.
Withdrawal of Tax benefits
Withdrawal of capital gains exemption u/s 54EC Income Tax Act will result in REC’s cost of funds gradually increasing by around 100bp as the existing Bonds mature. However, REC does pass on part of the benefit to borrowers by charging concessional rate of interest, which we expect will be discontinued if the section is withdrawn.
Withdrawal of tax exemption u/s 36 (1) (viii) of the Income Tax Act will result in REC’s effective tax rate going up by 6-7%, potentially bringing down sustainable RoEs from about 18% to about 16.5%.
Increase in borrowing / credit (NPA) costs
Competitive pressures may force REC’s spreads below projected levels. Due to the concentrated nature of its Asset Book, major systemic problems in the Power Sector may increase its NPA levels and drastically impact its profits.
Source: Moneycontrol.com
Angel Broking report on Rural Electrification Corporation IPO
Substantial funds requirement for Indian Power sector
Rural Electrification Corporation is a leading public financial institution exclusively focused on extending finance to the Indian Power Sector, which, going by the government’s stated intentions, is slated for tremendous growth during the Eleventh Five-year Plan (2007-2012). It is estimated that Rs 10.3 lakh crore of capital would be required to set up the power infrastructure targeted to be added by 2012. Within the available funding sources, the government envisages REC’s share at Rs 59,150 crore at least.
Accordingly, we expect REC to deliver a CAGR growth of 25% in Advances over FY2008-10E. Importantly, REC’s mandate has evolved over the years and it now finances all segments of the Power sector throughout the country. REC’s changing sanction mix corroborates this viz., the private sector borrowers and generation projects comprise an increasing share of sanctions, in line with the present dynamics of the Power sector.
Clear-cut, Profitable business model
REC’s primary source of revenue is interest Income from Power sector lending. Low-cost ‘54EC Bonds’ comprise 45% of its borrowings. REC is expected to deliver NIMs of 3.2-3.4% over FY2008-10E. Given its lean organisational structure, inherently low credit risk and Tax benefit u/s 36(1)(viii), RoAs should sustain at 2% levels.
REC’s leverage cannot exceed 8-9x to maintain AAA credit rating (critical for cost competitiveness). Accordingly, it is expected to deliver RoE of around 16% by FY2010E, which should increase to around 18% at optimum leverage (post FY2010E).
Tax benefits and treatment of deferred tax liability (DTL)
REC is eligible for tax benefit u/s 36(1) (viii) of IT Act, 1961 by creating a special reserve of upto 20% of profits. The company has created DTL in respect of this tax benefit – however, we believe the tax liability is unlikely to crystallize and consider it appropriate to treat the DTL so created (and to be created) as part of equity. Accordingly, we have increased book value by Rs 9.5 (and have assumed the effective Tax rate for FY2008-10E to be 27% for the same reason).
Outlook and Valuation
In the past few months, the Power Sector (on which REC is an indirect play) has seen valuations reaching frothy levels, only to come off recently. Against this backdrop, we believe the REC Issue comes at a reasonable price based on fundamental value, considering the high visibility of credit demand in the Power Finance sector, REC’s strong positioning in the same and its reasonably strong financial performance.
At the upper end of the price band of Rs 105, the stock is available at 1.3x FY2009E Adjusted Book Value of Rs 80.7 and 1.2x FY2010E Adjusted Book Value of Rs 90.5. The valuations compare favorably with its closest peer, PFC, which is trading at 1.8x FY2009E Adjusted Book Value of Rs 104 and 1.6x FY2010E Adjusted Book Value of Rs 117 at the CMP of Rs 185. We believe REC can command upto 1.5x 1-year Forward Adjusted Book Value, implying reasonable upside even at the upper end of the price band. Hence, we recommend subscribe to the issue.
Concerns
Credit offtake falling short of estimates
In the past, the government has often fallen short of targeted capacity addition in its Five-year Plans. The Ninth Plan had targeted a capacity addition of 40,245MW, of which only 47.8% was actually added during the Plan. Similarly, in the Tenth Plan, only 51.5% of the targeted capacity addition of 41,110MW was actually achieved.
The Eleventh Plan has an ambitious targeted capacity addition of 78,577MW, of which 13.7% (10,760MW) is expected to be in the Private sector. Various factors such as delays in environmental clearance, land acquisition, financial closure (on the Equity or Debt front) may result in shortfall in targeted capacity addition, as a result of which loan disbursements for REC may fall short of estimates.
Nonetheless, the environment is more enabling during the Eleventh Plan, driven by Power Sector reforms including enabling regulations such as the Electricity Act, which provide a framework for the private sector to expand viably and for the SEBs to be restructured and corporatised.
Moreover, greater competition from banks or development of deeper bond markets could result in a deteriorating NIM-credit growth trade-off for REC. This may be exacerbated by improving financial profile of Power Sector entities, with greater share of capacity addition moving to the private sector.
Withdrawal of Tax benefits
Withdrawal of capital gains exemption u/s 54EC Income Tax Act will result in REC’s cost of funds gradually increasing by around 100bp as the existing Bonds mature. However, REC does pass on part of the benefit to borrowers by charging concessional rate of interest, which we expect will be discontinued if the section is withdrawn.
Withdrawal of tax exemption u/s 36 (1) (viii) of the Income Tax Act will result in REC’s effective tax rate going up by 6-7%, potentially bringing down sustainable RoEs from about 18% to about 16.5%.
Increase in borrowing / credit (NPA) costs
Competitive pressures may force REC’s spreads below projected levels. Due to the concentrated nature of its Asset Book, major systemic problems in the Power Sector may increase its NPA levels and drastically impact its profits.
Source: Moneycontrol.com
Saturday, February 16, 2008
Apply for Rural Electr Corp IPO
Rural Electrification Corporation (REC), one of the leading public financial institutions in Indian power infrastructure, proposes to enter the capital markets on February 19, 2008 with a public issue of 156,120,000 equity shares of Rs 10 each through 100% book building process.
equity shares for subscription by eligible employees as defined in the Red Herring Prospectus.
Post issue, the company’s market cap will be of Rs 7727.94 – 9015.93 crore.
The issue shall constitute approximately 18.18% of the fully diluted post-issue capital of REC. The issue closes on February 22, 2008 and the price band has been fixed at Rs 90 to Rs 105 per equity share of Rs 10 each.
IL & FS Investsmart Securities Limited, ICICI Securities Limited and SBI Capital Markets Limited are the book running lead managers for the Issue. The equity shares are proposed to be listed on the NSE and the BSE.
The company proposes to utilize the net proceeds from the fresh issue to augment its capital base to meet the future capital requirements arising out of growth in its assets, primarily its loan and investment portfolio due to the growth of the Indian economy and for other general corporate purposes including meeting the expenses of the Issue. The company is seeking to strengthen its capital base to improve its borrowing capacity in order to support the future growth in its assets.
For FY07, the company reported income from operations at Rs 2651.6 crore as against Rs 2058.3 crore and profit after tax before extraordinary items at Rs 684.4 crore versus Rs 577.6 crore. Net profit stood at Rs 683 crore versus Rs 587 crore.
Source: Moneycontrol.com
equity shares for subscription by eligible employees as defined in the Red Herring Prospectus.
Post issue, the company’s market cap will be of Rs 7727.94 – 9015.93 crore.
The issue shall constitute approximately 18.18% of the fully diluted post-issue capital of REC. The issue closes on February 22, 2008 and the price band has been fixed at Rs 90 to Rs 105 per equity share of Rs 10 each.
IL & FS Investsmart Securities Limited, ICICI Securities Limited and SBI Capital Markets Limited are the book running lead managers for the Issue. The equity shares are proposed to be listed on the NSE and the BSE.
The company proposes to utilize the net proceeds from the fresh issue to augment its capital base to meet the future capital requirements arising out of growth in its assets, primarily its loan and investment portfolio due to the growth of the Indian economy and for other general corporate purposes including meeting the expenses of the Issue. The company is seeking to strengthen its capital base to improve its borrowing capacity in order to support the future growth in its assets.
For FY07, the company reported income from operations at Rs 2651.6 crore as against Rs 2058.3 crore and profit after tax before extraordinary items at Rs 684.4 crore versus Rs 577.6 crore. Net profit stood at Rs 683 crore versus Rs 587 crore.
Source: Moneycontrol.com
Wednesday, December 19, 2007
NHPC, REC to hit market soon
Initial public offers of state-owned electric utilities National Hydroelectric Power Corporation (NHPC) and Rural Electrification Corporation (REC) will hit the market "very soon", Power Minister Sushil Kumar Shinde today said.
"They will come very soon," Shinde said when asked when the two long-awaited IPOs will be launched.
The two public issues have been held back due to non-appointment of independent directors on the boards of the two companies.
REC and NHPC IPOs are among the public offers of four power companies that were originally approved, the other two being those of Power Finance Corp and Power Grid Corp of India, reports NW18.
Source: Moneycontrol.com
"They will come very soon," Shinde said when asked when the two long-awaited IPOs will be launched.
The two public issues have been held back due to non-appointment of independent directors on the boards of the two companies.
REC and NHPC IPOs are among the public offers of four power companies that were originally approved, the other two being those of Power Finance Corp and Power Grid Corp of India, reports NW18.
Source: Moneycontrol.com
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