MUMBAI Shares in NHPC Ltd rose less than 2 percent in their trading debut, disappointing investors who had hoped for a bigger gain after the state-run firm's $1.25 billion IPO was heavily oversubscribed.
The muted debut is the second in a row from a major Indian company and may dampen enthusiasm for future listings.
Last month, shares in private-sector utility Adani Power gained less than 1 percent on their first trading day after the firm raised $630 million.
NHPC, a hydropower company, saw its offering subscribed more than 20 times and is the first new listing by a state company in 18 months. India's deficit-wracked government is planning further stake sales in state firms to help raise money.
Shares in NHPC ended up 1.9 percent at 36.70 rupees, compared with the IPO price of 36 rupees, which was the top end of the indicated band. The benchmark Mumbai index ended down 0.7 percent.
The stock touched a high of 39.75 rupees and low of 36.60 rupees during the day after having debuted at 37 rupees.
"The listing is fairly below market expectations which was around 40-42 rupees," said Ambareesh Baliga, vice-president at Mumbai-based Karvy Stock Broking.
"Promoters of forthcoming IPOs would have to ensure that pricing is not as aggressive as it was in this case. It is a clear signal to them that they should leave something on the table for investors."
The NHPC stock was the most actively traded in the Mumbai market, notching a volume of 193 million shares.
NHPC Chairman S.K. Garg told reporters the listing was in line with the company's expectations and the firm was confident about its growth prospects, as India looks to boost supply for its power-starved economy.
Its net profit is likely to rise to over 11 billion rupees ($226 million) in the year to March 2010 from 10.75 billion rupees a year ago, he said, adding return on equity should rise to 10 percent in FY2012/13 from about 7 percent this year.
NHPC's earnings per share in this fiscal year is seen at 1.15 rupees, compared with 10.89 rupees for state-run NTPC, India's biggest power producer, and 75.99 rupees for Tata Power, according to estimates from Thomson Reuters I/B/E/S.
Angel Broking said in a note last month that a certain amount of discount for NHPC was justified on account of the lower return on equity and higher risks of delays in the execution of its projects.
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NHPC, which had last year deferred IPO plans due to turbulent market conditions, has developed 13 hydroelectric power plants with total installed capacity of 5,175 megawatts. It is building 11 projects with a total installed capacity of 4,622 megawatts.
Garg said NHPC's capital expenditure in this fiscal year is likely to be 46 billion rupees and that the company had already spent about 20 billion rupees this year on new projects.
Deven Choksey, chief executive of brokerage KR Choksey, said capital intensive companies such as NHPC tend to give good returns to long-term investors, and was a favourite with insurance firms and pension funds.
"I think it will become attractive when it comes closer to its full capacity," he said.
Analysts said a lukewarm response for the first IPO by a state-run firm since Rural Electrification Corp tapped the market in February 2008 might prompt the government to re-work its stake sale plans in more firms.
State-run explorer Oil India Ltd plans to raise as much as 27.8 billion rupees through an IPO, making it the second state-run firm to offer new shares to the public this year. The IPO will open on Sept. 7 and close on Sept. 10.
Private shipbuilder Pipavav Shipyard Ltd is likely to raise about 5 billion rupees through an IPO, a person close to the deal said on Monday.
Indian firms have raised nearly $10 billion in share sales so far this year, surpassing 2008 volumes, helped by a 62 percent rally in the main BSE index this year. However, the index inched down 0.02 percent in August after it rose 8.1 percent in July.
Enam Securities, Kotak Mahindra Capital Co and SBI Capital Markets managed the NHPC deal.
(Additional reporting by Devidutta Tripathy in NEW DELHI and Ketan Bondre in MUMBAI)
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