The government is likely to raise around Rs 5.98 billion through the sale of as much as 20 percent shares in Kot Addu Power Co, in a public offering by the end this month, analysts said. The government which is likely to announce selling price of Kot Addu this week, estimates collected from seven brokerage houses in Karachi revealed that the average price of electricity producer would be 34 rupees a share. The government intends to sell 176 million shares.
The average selling price of seven brokerage houses: KASB Equities, First Capital Equities, First National Equities, Investcapital Securities, Capital One Equities, AKD Securities and Live Securities ranged between 28 rupees to 37 rupees a share.
We are expecting the Kapco's price in the range of Rs 30-35 per share as compared with previous IPOs and comparable power sector companies, said Muhammad Owais, head of research at First National Equities.
He said after we have assumed the P/E multiple of 4-4.5 rupees for Kapco's IPO, relatively lower than the previous IPOs - OGDCL and PPL because the earnings outlook for the later two, is growth-based as compared to the Kapco's outlook which seems stable, adding the P/E of OGDC and PPL are around 6.65 and 6.66 rupees, respectively.
Also, the comparable listed IPPs - Hubco and Southern Electric are trading at low P/E multiple of around 7 rupees as compared to the market P/E multiple of above 10 rupees, he added.
Kapco will achieve a maximum growth in earnings in FY'05 because the company is currently enjoying an income tax exemption, which will be expiring in the calendar year 2006.
Thus, he said the earnings outlook for the company doesn't seem growth-oriented in the medium-term, adding the Privatisation Commission needs to offer Kapco at a larger discount than the previous IPOs to make it attractive for investors because fundamentals of Kapco are relatively different than the OGDCL and PPL.
Fawad Khan from Alfalah Securities, said: "Our initial estimate is that Kapco would be an appropriate stocks to take exposure in the power sector of Pakistan as (i) it is a fairly large size thermal project, (ii) the foreign management is technically sound and experienced in running plants in Pakistan, and (iii) offers an opportunity for those large investors that want to take exposure in the power sector, but have no options due to Hubco specific issues and relatively small float for other power generation companies."
"We expect the interest to not only come from the retail investors, (who will buy the stocks through IPO and also from institutional investors (who would want to take positions from the secondary market)", said Fawad.
The Global Securities Ltd, a Karachi-based brokerage, is advising the government on the Kot Addu sale. The government owns 64 percent stake of Kot Addu, which operates a 1600-megawatt power plant in southern Punjab, after selling a 36 percent controlling stake in the power producer to International Power in the 1990s.
Kot Addu's profit rose 27 percent to 6.94 billion rupees, or 7.88 rupees a share, in the year ended June 30 from 5.46 billion rupees, or 6.21 rupees, a year earlier, the annual report of the company showed.