Sterlite Power Transmission IPO - 7 Things to Know

Sterlite Power Transmission, part of the Anil Agarwal group and into specialized transmission of power, has already filed its DRHP with SEBI for its proposed IPO and the SEBI approval has already come in December 2021. Normally, companies launch their IPOs within a couple of months of the SEBI approval so the actual IPO could happen anytime during the March quarter.

7 Important Things to Know About Sterlite Power Transmission IPO

1) Sterlite Power Transmission has filed for a Rs.1,250 crore IPO with SEBI which comprises entirely of a fresh issue of Rs.1,250 crore. There will be no offer for sale component in the IPO so the entire IPO will raise in fresh funds coming into the market and since they entail the issue of fresh shares to the public, it would also be EPS dilutive.

2) For the financial year FY21, Sterlite Power Transmission reported a turnaround in the bottom line to profits. For FY21, Sterlite Power Transmission reported sales revenues of Rs.2,934 crore compared to revenues of Rs.2,675 crore in the FY20 period.

During FY21, the net profits of Sterlite Power Transmission turned around to profit at Rs.362.92 crore compared to a net loss of Rs.-517.71 crore in the FY20 period. 

3) The company has a small capital base of just about 6 crore shares  and on the current profit of Rs.362.92 crore, it provides an approximate Price Earnings discounting of over 60 times earnings on a historical basis. However, the stock has been correcting and has lost nearly 25% in the pre-IPO informal market.

It is hard to find benchmarks, but if one were to look at a comparable market benchmark, then Sterlite Power Transmission will have a post issue market cap of around Rs.8,100 crore, which is sharply lower than the market cap of Adani Transmission at more than Rs.2 trillion. 

4) Transmission in a specialized way is a big business and is in line with the changing model of bring power to the last mile. Also, with massive infrastructure projects on the anvil like rural electrification, electrification of railway tracks and the big push to electrical vehicles and renewable energy, the potential for the stock to expand its portfolio is huge.

More so considering that the stock on post-listing basis will trade at just around 2.5 times the annual sales reported in the fiscal year FY21.

5) The company has seen a turnaround in performance and power transmission is a stable business with high margins, high entry barriers and hence low competition. The front-ending of capital costs for Sterlite Power Transmission is almost completed and going ahead, the benefits of these investments will be reaped.

That is what puts the Sterlite Power Transmission IPO in such a sweet spot for the investors. Also considering that there is no immediate alternative to power, the earnings in this business are likely to be robust for years to come.

6) Sterlite Power Transmission is the largest player in the power transmission business under the inter-state tariff-based competitive bidding (TBCB) route. It already has the highest market share of transmission projects awarded through this route and currently enjoys a 26% market share in the particular niche it operates in. This data has been also confirmed by CRISIL in its recent report.

Above all, Sterlite Power Transmission enjoys robust ROCE of over 35% and ahead of the IPO, the company has sharply reduced its debt from a level of Rs.7,000 crore to just about Rs.2,780 crore. 

7) The IPO of Sterlite Power Transmission will be lead managed by ICICI Securities, Axis Capital and JM Financial. They will act as the book running lead managers or BRLMs to the issue. KFIN Technologies (formerly known as Karvy Computershare) will be the designated registrars to the issue.

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