Rural Electrification Corp!!
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FM expected to announce exclusive infrastructure bonds investment under tax excemption(as it was few years back). Hence possible to get it in furure. seems this stock is subscribed more than 1 time on day 1 itself.
Total Bids Received 334513620
Total Bids Received at Cut-off Price 2967180
No. of times issue is subscribed 2.14
This is from NSE (http://nseindia.com/marketinfo/ipochart/ipochart.jsp?issue=RECCUMUEQ&ir=I&cn=C&sd=D&cnlink=N)
Getting interested! Also see Tulsian's site (http://www.premiuminvestments.in/cover-feature-9224/106/Ipo-of-rec-–-knight-in-shining-armour.html)
It's a difficult time to be recommending a SUBSCRIBE on any IPO, but REC (Rural Electrification Corporation) seems to be a deserving exception. Here's an IPO note on the company.
Mandated by the government of India to lend to the power sector, REC's focus so far has been on the T&D space as opposed to its larger cousin PFC's generation focus. Growing its loan book is definitely not a worry for this company, as the power sector is a key thrust area for the 11th and 12th five year plans. I would expect a minimum of 25% loan book growth, and high asset quality.
And this in spite of the fact that it lends almost entirely to PSUs. Why ? Simple, after years of loss making operations, most SEBs are aggressively reforming with generation, transmission and distribution operations sliced out into different entities. Financial and operational reform are the two pillars on which may sick SEBs are being revived. Add growth to this situation, and you have a sweet spot for lenders. Let's face it : there's nothing more attractive for lenders than ten straight years of growth and almost no worry on asset quality.
My worry is on sustainability of spreads. The company's NIMs (net interest margins) are very healthy, at over 3%. The offered reason is the long tenure lending that it does, aided in ample measure by the tax free bonds that it can issue to depositors. Some of this charm will get eroded now that government has mandated a ceiling of Rs 50 lacs for any entitiy investing in these bonds. The company claims that interest margins will still not erode significantly, since fee incomes will begin soon and it will borrow from banks at competitive rates. This is possible, because banks' provisioning is stricter for direct lending to projects as compared to the lenient provisioning norms when they lend to REC, PFC, etc. Let's see how this pans out for REC's interest margins...
Meanwhile, REC's basic return to shareholders (RoE) is consistently high at well above 20%. This is likely to level off to a shade under 20%, but remember there's headroom (debt : equity likely to fall to under 7 from over 8.9 in FY07, after the recent fund raising) to borrow more and push up RoE. After the encouraging half yearly showing and the IPO, REC's adjusted book value per share will rise to over Rs 58, so you are buying this stock for less than 2X ABV on an immediate basis. Even if H2 is the same as H1, REC should add at least six rupees per share to this ABV. And if in FY09 the company merely replicates its FY08 showing, it will have an ABV of over Rs 76.
All in all, a good company with a bright future, going public in relatively troubled times. If you can detach yourself from the near term market worries, you will see REC's business shining through and feel like applying. That's exactly what I intend doing !
Mandated by the government of India to lend to the power sector, REC's focus so far has been on the T&D space as opposed to its larger cousin PFC's generation focus. Growing its loan book is definitely not a worry for this company, as the power sector is a key thrust area for the 11th and 12th five year plans. I would expect a minimum of 25% loan book growth, and high asset quality.
And this in spite of the fact that it lends almost entirely to PSUs. Why ? Simple, after years of loss making operations, most SEBs are aggressively reforming with generation, transmission and distribution operations sliced out into different entities. Financial and operational reform are the two pillars on which may sick SEBs are being revived. Add growth to this situation, and you have a sweet spot for lenders. Let's face it : there's nothing more attractive for lenders than ten straight years of growth and almost no worry on asset quality.
My worry is on sustainability of spreads. The company's NIMs (net interest margins) are very healthy, at over 3%. The offered reason is the long tenure lending that it does, aided in ample measure by the tax free bonds that it can issue to depositors. Some of this charm will get eroded now that government has mandated a ceiling of Rs 50 lacs for any entitiy investing in these bonds. The company claims that interest margins will still not erode significantly, since fee incomes will begin soon and it will borrow from banks at competitive rates. This is possible, because banks' provisioning is stricter for direct lending to projects as compared to the lenient provisioning norms when they lend to REC, PFC, etc. Let's see how this pans out for REC's interest margins...
Meanwhile, REC's basic return to shareholders (RoE) is consistently high at well above 20%. This is likely to level off to a shade under 20%, but remember there's headroom (debt : equity likely to fall to under 7 from over 8.9 in FY07, after the recent fund raising) to borrow more and push up RoE. After the encouraging half yearly showing and the IPO, REC's adjusted book value per share will rise to over Rs 58, so you are buying this stock for less than 2X ABV on an immediate basis. Even if H2 is the same as H1, REC should add at least six rupees per share to this ABV. And if in FY09 the company merely replicates its FY08 showing, it will have an ABV of over Rs 76.
All in all, a good company with a bright future, going public in relatively troubled times. If you can detach yourself from the near term market worries, you will see REC's business shining through and feel like applying. That's exactly what I intend doing !
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