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Strategies & Market Trends : India Coffee House
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To: Mohan Marette who wrote (9016)10/27/1999 1:32:00 AM
From: Mohan Marette  Read Replies (1) of 12475
 
A Silver lining for Power utilities - thanks to the sage of Omaha

26-10-1999 17:42:58

Berkshire Hathaway Inc., along with other investors, is buying Iowa-based electric and natural gas utility and power generator, MidAmerican Energy Holdings Company for $9bn, which works out to $35.05 per share. The price is at a 20% premium to the then prevailing market price of $29 per share. The share price has subsequently risen to $32. MidAmerican operates gas-based power stations with an annual power generating capacity of 10000MW and distributes natural gas and electricity to 3.3mn customers in the USA. Berkshire has valued the stock at approximately 17 times its expected earnings. It has been reported that Warren Buffet sees immense potential in the energy business in the de-regulated market of USA.

Prominent companies in similar businesses in India would be BSES and TECs. TECs are trading at a FY00 P/E ratio of 6 times, while BSES is trading at a multiple of 9 times. It is a matter of time before the returns for licensees is deregulated in India. One can imagine the explosive share price appreciation that is bound to happen once these stocks are rerated in line with stocks abroad, post-deregulation.

Will the gas business in MidAmerican result in renewed interest in GAIL and Gujrat Gas? Gujarat Gas has sold off its LPG distribution to Reliance infrastructure. Although it is popularly believed that GAIL lacks retail focus, it could have tons of hidden value, by virtue of it?s 50% stake in Mahanagar Gas, which distributes LPG within Mumbai city. (Probity)
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