Reliance Power will oversubscribe hopelessly2008-01-07 14:58:29 Source : moneycontrol

Q: The space everyone will talk about from now up until when the IPO kicks off its power. What’s a good way to approach Reliance Power?

A: I don’t think everybody will get much allotment in the Reliance Power IPO, because it will be hopelessly oversubscribed. So you need to now focus your eyes on what happens post-listing and when you take a look at the grey market then you worry a little bit, not a little bit more than a little bit because the grey market price is somewhere around Rs 900 that’s double of the IPO price. Whatever good to that one is heard from the management on the Reliance Power IPO and there were many positives, which came through from the media conference at Rs 900 its very difficult unless the market remains in this very frothy frame of mind on the sector its extremely difficult to justify that price because at Rs 900 you are talking about 2 lakh crore marketcap for Reliance Power, you got to look four-five years out and still you will be scratching your heads to justify that.

Reliance Industries one-year back in February 2007 was at 2 lakh crores marketcap and not even a year has passed since Reliance crossed over that 2 lakh crore marketcap. But that’s apples and oranges just look at Reliance Power at Rs 900 our estimates are that in FY11 we are sitting in FY08 right now, so straight away you take a leap of three-years for generation and you may find that they have 6,000 megawatts in FY11 that’s three-years down the line assuming faultless execution.

You want to look at sales and earnings you take a bigger leap go to FY13 that’s five-years from now, FY13 what the pre-multiple would be on our expected delivery - 90. We are talking about 90-times FY13 earnings if all goes well on execution for Reliance Power at Rs 900. If you look at four-years out FY012 and attribute some sales number to the kind of generation that they have, you are almost talking about 30-times sales for FY012 that’s four-years down the line. It’s a good space and probably this company will do lots of exciting things down the line but sitting out here to justify Rs 900 per share on Reliance Power even if you have that perspective of three-four years, five-years down the line seems like a big leap of faith.