The initial public offer (IPO) of NHPC, the state-run hydropower producer, was subscribed 3.54 times on the opening day yesterday. The IPO has drawn a lot of attention from various categories of investors despite the offer coming at a price to earnings (P/E) multiple of 30-36 times of its 2008-09 earnings.
The IPO is priced around Rs 30-36 per share of Rs 10 face value.
The power producer has posted a consolidated net profit of Rs 1,244.15 crore for the financial year 2008-09. This means that on an equity capital of Rs 12,860 crore, the offer is at a P/E of 31.25-37.5. On a projected earning per share (EPS) of Rs 1.40 for 2009-10 (Motilal Oswal estimates), the stock is available at a P/E of 21.5-25.7 times.
Listed power companies are currently available at a P/E of 25.4 times of trailing 12 months’ earnings. Tata Power, Neyveli Lignite and JP Hydro Power are currently trading at a P/E of over 25 times, while NTPC, Reliance Infra and Torrent Power are quoted at a P/E of around 21-22 times. Reliance Power is currently trading at Rs 170.40, down 39 per cent from its offer price of Rs 281.25 (adjusted after bonus issue) in February 2008.
There is a reason for an overwhelming response to NHPC public offer on the opening day. In the past, investors in as many as 11 IPOs of public sector companies had received fabulous returns. All 11 offerings by public sector companies, including three banks, floated since 2004 are currently trading above their issue price compared to only a little over 36 per cent of the IPOs from the private sector.
Of these 11, except for Bank of Maharashtra and Central Bank of India (CBI), all others have outperformed the equity market till date by reporting an average return of 194 per cent compared to a 49 per cent rise in the Sensex. The offer price data suggest that most PSU offerings come at a lower premium compared to private sector issues.
Prithvi Haldea, chairman & managing director, Prime Database, said, “PSU offerings are moderately or underpriced and give good short- and long-term returns to both retail and institutional investors. Since the track record of PSU stocks in terms on capital appreciation is good, there is a good scope for divestment programme getting place successfully.”
11 PSUs, which collectively raised Rs 15,047 crore, are currently valued at Rs 42,379 crore, 182 per cent higher than their offer size. However, except for Central Bank of India which trades at Rs 102.60 (at one per cent premium to its issue price of Rs 102), the remaining ten stocks are trading at a premium up to 475 per cent on BSE.
Nilesh shah, deputy chief executive officer, ICICI Pru AMC, said, “Shares of public sector companies are generally priced in a way that leaves something for shareholders to make money, and they are shareholder-friendly. Private companies coming out with IPOs generally price them in a way that leaves little for shareholders.”
On the other hand, out of a total 285 IPOs from private sector companies, which mobilised Rs 85,257 crore from the public in the last five and half years, have seen a value erosion of Rs 6,648 crore to Rs 78,610 crore from their offer size.
Of these 285, 64 per cent or 183 are trading below their issue price, while as many as 75 per cent (215 stocks) have underperformed the equity market by reporting an average 47 per cent decline compared to an average 26 per cent gain for the Sensex.
However, private sector initial offers of Educomp Solutions, Glodyne Technoserve, Indiabulls Financial Services, Tulip IT Services and Shree Renuka Sugars have beaten the Sensex by gaining over 500 per cent from their issue price.
