14
Sep
13

Opportunities in Power grid..

Power-grid is about to come with its FPO shortly. PSU is expected to issue fresh 15 percent equity and 5 percent equity would be divested by Government of India. After 2010 FPO, it would be another equity raising by the company. Power grid is in capital-intensive business and it requires constant equity infusion. But should you buy Power grid in FPO ? Power grid is a kind of annuity business which is assured of constant ROE by Government. It is currently trading at reasonable valuations of 10-11 X of earnings. As a shareholder you might feel it moves very slowly and given the fact that last FPO price in 2010 was 90 and current price is 100, its return are below annual bank fixed deposit of 9 percent. I am expecting FPO price of closer to 100 but I won’t be a buyer in FPO. I am not a fan of PSU companies and they are never a part of my long-term portfolio. They have never generated consistent long-term wealth for shareholders. These can be trading bets from oversold levels but not long-term bets. Power-grid is my favorite trading stock. I keep selling Power-grid calls and buy covered calls in it (buy future and sell call). Given FPO overhang and 15 percent equity dilution I don’t expect share price to rise sharply in near future.

Disclaimer: Please take reasonable care while trading in options, especially while selling. I am not advising anyone to sell or buy options. My purpose of writing this blog is to highlight my trading strategies.

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