Reliance Power is planning to raise around Rs 10,530-11,700 crore from its initial public offering (IPO) of 26 crore equity shares with a face value of Rs 10, for cash, a price decided through 100% book building process. The price band is at Rs 405-450 per share.
Moneycontrol conducted a poll on market experts to check whether to apply for the public issue or not. Experts said apply.
| Experts/Company | Poll Result | Experts view |
| R S Iyer (KR Choksey) | Apply | Investors should apply for Reliance Power IPO. Retail investors can apply for maximum 225 shares at cut off mode. In part payment method I, one should apply at Rs 115 per share amounting to Rs 25,875. Retail Investors category is expected to subscribe 8-10 times. So one is likely to get 25-30 shares in an allotment, which means one is paying just Rs 10750-12900 at Rs 430 per share (Rs 20 discount for retail investors). Balance amount will be refunded. It is learnt from this fact that one can easily get listing gains. |
| Manish Bhatt (Prabhudas Lilladher) | Apply | Investors should subscribe to the issue at cut off price. In the part payment method - I, one can apply at Rs 115 per share. Retail category is expected to subscribe 13 times and HNIs more than 250 times. So one should get about 17 shares in allotment. It means just making payment of Rs 7310 and balance of Rs 18565 will be refunded. He believes that retail category is going to subscribe minimum 4 times, which means retail investors are still getting refund. There is no problem for them, they can sell it on listing day. One can also consider this IPO with long term perspective, if one wants. |
| SP Tulsian (Investment Advisor) | Apply | Reliance Power issue, at the upper band of Rs 450 per share, would mobilize Rs 11,700 crore, of which, promoters are bringing in only Rs 1,440 crore. About 88.50% of expanded equity base has been acquired by the promoters at par. It is certain that there would not be any financial performance from the company till FY10. Then, as an investor, what does one do, as no results or financial performance would be available to analyze neither quarterly nor yearly? Maybe, track and play on the stock price, as that is the only adventure that would remain during this interim period of project execution and erection. The expanded equity of the company, Post IPO, would be placed at Rs 2,260 crore and taking the issue price at Rs 450 per share, this translates into a market capitalization of Rs 1,02,000 crores considering grey market premium of Rs 370 per share, with expected listing price of Rs 820, the same would be at Rs 1,85,000 crore. Enterprise value, in this case, would be close to Rs 2,10,000 crore.. Does, the company, with long gestation periods, for all the greenfield power projects, deserve this kind of valuation? NTPC having a power generating capacity in excess of 25,000 MW, has a market capitalization of Rs.2,27,000 crores with estimated enterprise value (EV) of Rs.2,45,000 crores. NTPC also has an expected EPS of close to Rs.10 for FY 08 with Govt. of India holding 90%. Tata Power having power generating capacity of close to Rs.3,000 MW has a market capitalization of Rs 34,000 crores, with EV of close to Rs.36,000 crores. Even Tata Power has project pipeline of close to 7,000 MW, including Ultra Mega Power Project of 4,000 MW at Mundra. While comparing these companies with Reliance Power, you are forced to conclude that either these companies are undervalued or Reliance Power has irrational exuberance. The restructuring of various power projects from Reliance Energy into the company were questioned, but concern is more on diluting the stake of Reliance Energy to 45%, post IPO. The new projects of close to 21,000 MW would need an investment of about Rs.95,000 crores, which would leverage the balance sheet, coupled with equity dilution, as there won’t be any internal accruals for the next 2 – 3 years from the operations. Also, some of the projects, like Sasan have been acquired at a wafer thin margin, (for the sake of acquiring it), which we wish, should not become onerous for the company. We have no apprehensions on the capability of the group, but there remains great execution risks, due to long delivery schedule of critical equipments like turbines, boilers and other power generating equipments. Strictly speaking, comparing purely on fundamentals, better plays are available in the secondary market. Why to wait for 2 – 3 years, for the company to show performance? Still, with these if’s and but’s, HNI category is likely to get subscribed by close to 200 times, QIB, maybe, by about 150 times and Retail Category by about 7 to 8 times. So, if you want to ride the momentum, go ahead. |
The IPO will open on January 15 and close on January 18, 2008. Net issue would constitute of 10.1% of post issue paid up capital of the company. Outstanding shares post issue will be of 226 crore equity shares.
Market cap will be Rs 91,530-101,700 crore (USD 23.23-25.8 billion).
The proceeds from the issue will be used for part financing power subsidiaries and for 13 power generation projects. The projects will be developed by 9 subsidiaries. Some funds will be used for general corporate purposes.
Book running lead managers are Kotak Mahindra Capital Company Ltd, UBS Securities India Pvt Ltd, ABN Amro Securities (I) Pvt Ltd, Deutsche Equities India Pvt Ltd, Enam Securities Pvt Ltd, ICICI Securities Ltd, JM Financial Consultants Pvt Ltd and JP Morgan India Pvt Ltd and Karvy Computershare Pvt Ltd is the registrar to the issue
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