“ Financial Risk Management ”

Title of Project: Expected FPO issue price of Power

Grid.
 POWER GRID FPO, 9TH NOVEMBER, 2010

India's biggest inter-state transmission company Power Grid Corporation of India is set to hit
capital markets again with a follow-on public offer on November 9, 2010.

The Board of Directors of the company in a meeting held on October 20, 2010, has approved
the red herring prospectus (RHP) for follow on offer of the company. The subscription for FPO
will be opening on November 09, 2010 while closing for QIB bidders on November 11, 2010 and
for retail & Non-Institutional bidders (including eligible employees bidding in the Employee
Reservation Portion) on November 12, 2010.

The company aims to raise Rs 8,000 crore through follow-on offer (source: reports CNBC-
TV18.).The proceeds will be mainly utilised for constructing nine country-wide high capacity
power transmission corridors costing USD 13 billion (Rs 58,000 crore), Chaturvedi said.

Earlier, on July 02, 2010, the company has approved the FPO of 20% of existing paid up share
capital comprising fresh issue of 10% of existing paid up share capital and offer for sale
(Disinvestment) of 10% of existing paid up share capital by Government of India. Post dilution,
the government stake would be 76.36% in company.

PUBLIC ISSUE OF 841,768,246 EQUITY SHARES OF 10 EACH (“EQUITY SHARES”).

Issue opens 09-Nov-10

Issue closes 12-Nov-10
Listing on BSE,NSE

Possibilities:

1. So according to the available info above, the required FPO issue price of Power grid
would be Rs.95/share (Rs 8000 cr/ 84.1768 cr shares).

2. The average price of the share of Power Grid is Rs 100.76. At present the total
outstanding shares is 420.8 crore (apprx) and the FPO is going to issue 84.1768 crore
(apprx) of shares and the total would be 504.9768 crore of shares (apprx).

So, The total price of shares is Rs100.76 * 504.9768 = Rs. 50881.46 crore (apprx)
 Now at present the current price of each share is Rs 101.3 and the total value of the
outstanding shares is 101.3*420.8 = Rs. 42627.04 crore (apprx)

To maintain the same average price the issue price of each of the FPO share is
= (50881.46 - 42627.04) / (84.1768) = Rs. 98.06/share (approx).

3. P/E Method

PGCL: EPS (current) =5.68

EPS (audited) = 4.85
EPS (average last 4 years with 420.8 cr outstanding shares in the market) = 4.51

P/E (Trailing); Industry: 22.3

PGCL: 20.4
If PGCL’s objective is to maintain an average P/E of 4.51 then to maintain that the price
of the share would be;
4.51 * 22.3 = Rs 100.57/ share (approx, according to industry standards).
4.51 * 20.4 = Rs 92/ share (approx, according to company standards).

Peer Group Evaluation (taking into account of their EPS): Taking EPS at 4.85
NTPC: 4.8 * 20= Rs 96/share
NHPC: 4.8 * 18.5 = Rs. 89.73/share
RIL Infra: 4.85 * 24.1 = Rs. 116.89/share

4. The Price to Book Value of Power Grid is 2.7. Where the Book Value of it is Rs. 37.53
(current) and Rs. 38 (Max);
So, the Price/share is 37.53 * 2.7 = Rs.101.53/share
Again, 38 * 2.7= Rs. 102.6/share

Therefore according to the above results we can say that the price rage may vary from
Rs.100/share to Rs. 92/share but the most possible range that the FPO issue price of the Power
Grid could be from Rs 89/ share - Rs. 98.06/share and the most probable FPO issue price of
Power Grid is Rs.95/share.
The follow-on public offer (FPO) of Power Grid Corporation of India was subscribed 9.72
times on Thursday, the last day of subscription for institutional investors.

The institutional investor segment was subscribed over 18.52 times, according to the
Bombay Stock Exchange data. The portions reserved for retail and non-institutional
investors (NIIs), for which the bidding closes tomorrow, were subscribed 0.72 times and
1.63 times, respectively.

IN DEMAND
CATEGORY-WISE SUBSCRIPTION FIGURES ON DAY 3

Category in times

Institutional 18.52

Retail 0.72

NII 1.63

Source: BSE

The price band for the Power Grid issue is Rs 85-90. At the upper band, this translates into
more than 10 per cent discount to the stock last closing price of Rs 101.20 on BSE. Retail
investors and the employees will get additional five per cent discount on the final issue
price.

Almost all broking firms have advised their clients to subscribe to the issue. According to
Angel Broking, at the upper price band, Power Grid is available at price-to-book value
(P/BV) of 1.7 times and price-to-earnings (PE) of 12.2 times on 2011-12 estimates.