India Grid Trust IPO Opens: Should You Invest?

The initial public offer (IPO) of India Grid Trust, India's second infrastructure investment trust (InvIT), opens for subscription on Wednesday. Priced in a band of Rs 98-Rs 100, India Grid Trust plans to raise Rs 2,250 crore by issuing 22.5 crore shares through this IPO. Bids for the IPO can be made for a minimum of 10,206 units and in multiple of 5,103 units thereafter. India Grid Trust IPO will be open for three days through May 19, 2017. Its shares will be listed on NSE and BSE. India Grid Trust raised Rs 1,012 crore from 19 anchor investors on Tuesday.

Here are five things to know about this issue:

1) Established on October 21, 2016, India Grid is an infrastructure investment trust, established to own interstate power transmission assets in India. Its sponsor - Sterlite Power Grid Ventures Limited - is a power transmission company with extensive experience in bidding, designing, financing, constructing and maintaining power transmission projects across India. Sterlite Investment Managers Limited is the investment manager of this fund, while Sterlite Power Grid Ventures Limited is the project manager. The investment objective of IndiGrid is to undertake activities as an infrastructure investment trust in accordance with the provisions of the InvIT Regulations and the Trust Deed. Axis Trustee Services, the trustee of India Grid Trust, will oversee the activities of the investment manager in the interest of the unit holders.

2) India Grid will acquire two projects with a total network of eight power transmission lines of approximately 1,936 ckms and two substations having 6,000 MVA of transformation capacity across four states from its sponsor Sterlite Power Grid Ventures Limited, which owns 11 inter-state power transmission projects. The two projects are Bhopal Dhule Transmission Company Limited (BDTCL) and Jabalpur Transmission Company (JTCL).

3) Analysts say infrastructure necessary to transmit and deliver electricity is vital to India's continued economic advancement given the inter-regional power deficit resulting from a mismatch between power generation and load centers and the demand-supply deficit which is expected to result from India's projected GDP growth. There has been strong growth in the transmission system at higher voltage levels and substation capacities (400 kV and above).The total length of the '220 kV and above' transmission lines in the country has increased from 198,407 ckm in fiscal 2007 to 341,551 ckm in March 2016, analysts said.

4) For the fiscal year FY2016, the two projects had reported revenues of Rs 357 crore and operating profit of Rs 315.4 crore. However, on a net basis it reported a loss of Rs 78.4 crore, which was mainly due to interest out go of Rs 330 crore. The IPO proceeds will be used to extend loan to BDTCL and JTCL for repayment or pre-payment of debt. Domestic brokerage Angel Broking has given a "subscribe" rating to the issue citing its "attractive valuations" and its higher chances of claiming incentive. "Maintaining availability of the Initial Portfolio Assets in excess of 98 per cent, gives IndiGrid the right to claim incentives under the TSA," the brokerage said. IndiGrid has maintained an annual availability for each of the Initial Portfolio Assets in excess of 98 per cent since commissioning for which have earned maximum incentive revenues under the respective TSAs.

5) Inability to maintain and operate the power transmission projects, changes in tariff structure or policies are some of the key risks highlighted by analysts.