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Sterlite Power plans for an IPO, What makes its investment worthy

Anil Agarwal led Vedanta Group is mulling to float the initial public offering of its power arm Sterlite Power Transmission by the end of 2021.

The company has sent a postal ballot notice to its shareholders stating that it will consider and if thought it, to pass, with or without modifications the  IPO plans as a special resolution.

The company is aiming to raise up to Rs 2,000 crore via is primary offering. This will increase the company’s marketcap nearing to Rs 10,000-12,000 crore from Rs 4,500-4,800 crore currently. Thus the company has immense upside potential from current levels.

Power Grid has a marketcap of Rs 1.3 lakh crore and Adani transmission’s market cap has shrinked to Rs 1.05 lakh crore after 40 per cent fall in last one month. Considering these levels, it is a long term value buy.

The company’s promoters will not dilute 40-50% equity in the upcoming IPO. Thus are likely to issue bonus shares to the shareholders to increase the valuation of the company. The company will dilute close to 20% stake in the IPO. Thus, there is a decent valuation gap currently.

The IPO of Sterlite Power is expected in 2021 itself. The company is likely to debut on bourses by the end of the year. It is among the most demanded shares in the unlisted market.

Sterlite Power is in the business of manufacturing the power products, power transmission and solution to the problems of intersection of time space and capital. Sterlite Power is the second most prominent power transmission company of India after Power Grid. It is much ahead than Adani Transmission and Essel Group in terms of market share. The company has a robust order book in India and Brazil. Also the swift and strong execution highlights the efficiency and strength of the management, which adds to the attraction of the company.

The company has a strong execution line in Jammu & Kashmir extending from Jammu to Srinagar. The company completed the project in less than two years, almost half the time given to execute it.

Similarly, the company has bagged an order book worth $2-$3 billion from a dozen states of Brazil, ensuring the revenue visibility until 2025. In India, the company brags a pan nation presence.

Sterlite Power has a market share of about 31.5 per cent in terms of tariff. Power Grid has a market share of 36 per cent, whereas Adani Transmission has less than 18 per cent share, a report by Institute of Energy Economics and Financial Analysis (IEEFA), released in February 2020 said. According to the company’s website, it has 68 high voltage lines and 26,100 MVA of transformation capacity. Currently, it has a $5.83 billion order book for more than two dozen power transmission projects.

The best of company is yet to come as the transmission infrastructure of India would be capitalised by telecommunication companies for nationwide 5G rollout. Also, electric vehicles are the future. The demand for power consumption and transmission is likely to move northwards in the coming year. The demand for power is likely to surge on the back of rapid industrialisation, if the government is aiming to make India a global manufacturing hub.

On the other hand, the company is superbly managing its finance, to ensure a strong and sound balance sheet for the investors. The company is serving its debt and the focus is on reduction of leverage. Asset monetisation via Invits at a hefty margin is also a big booster for the company. As the other major power transmission players are moving towards green and renewable energy, Sterlite Power will also increase the focus on the same and repeat the benefits from the same. In the financial year 2020-21 the company turned profitable. The company managed a standalone revenue of Rs 2,933.85 crore in FY 2020-21 and a profit of Rs 362.92 crore. The consolidated profits stood at Rs 869.77 crore during the fiscal.

The company has approximately 13,500 circuit kms of transmission lines. The company had announced an interim dividend of Rs 5.30 per share, with the face value of Rs 2 apiece.

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