RURAL ELECTRIFICATION CORPORATION

Rural Electrification Corporation is entering the capital market on 19th February 08, with a public issue of 15.61 crore equity shares of Rs.10 each, in the band of Rs.90 to Rs.105 per share. 50% of this issue is by way of fresh issue while 50% is by way of offer for sale. After the recent debacle of many IPOs, this is one of the mega issues, which intends to mobilize Rs.1,640 crores. It has been seen that PSU IPOs have been reasonably valued. This maybe due to the conservative approach of issuer's officials, as also, no personal interest is involved, as sailing through the issue is more important than the valuation. This issue falls in this category. The company is a public financial institution, engaged in the financing and promotion of transmission, distribution and generation projects throughout India. The company, all along has been financing public sector projects, but has been shifting to joint sector and private sector, in view of mega power projects, now being set up by the private sector. As at 30-09-07, total of Rs.35,050 crores has been financed by the company, of which 96.33% has been to the public sector. For FY 07, the total income of the company was at Rs.2,933 crores with PAT of Rs.776 crores, giving an EPS of Rs.9.95 on equity of Rs.780.60 crores. First six months of FY 08 seems to be quite good with topline at Rs.1,792 crores and PAT of Rs.523 crores, which results in an annualized EPS of Rs.13.40. Even on fully diluted equity of Rs.858.66 crores, this would be close to Rs.12.20. The present book value, as at 30-09-07, is at Rs.54, which would rise to Rs.63 to Rs.64, depending on the price discovery, post IPO. Fresh infusion of Rs.700 crores to Rs.800 crores, into the company would be EPS accretive and 82% government stake, post issue, is also an assuring feature. The funds are mobilized mainly to augment capital base to meet future capital requirement of improved business and to list the shares. We feel that in this turmoil, when primary market is not at all comforting with any good IPO, this is a better issue, where investors can safely apply for reasonable gains.

RURAL ELECTRIFICATION CORPORATION

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