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Reliance Power IPO - What I have learnt?

Reliance Power IPO is the hot topic doing the rounds in the capital markets for variety of reasons. I have read many articles on the Reliance Power IPO both for and against it.
Reliance Power would be setting up Ultra Mega Power Plants and the first revenue flow would start from Mar 2010 only. Till then the company would be in the investment mode with no tangible revenues accruing to it.

Already the IPO has been over-subscribed by more than 10 times. That is, Reliance Power has garnered bids to the extent of more than 100,000 crores. Really staggering!! Probably, that is one of the reasons why we are seeing a sell-off in the Indian markets particularly, by the retail investors to apply to the Reliance IPO. NDTV Profit carried out an analysis of how much money the company would earn by parking the application money collected during the IPO. At 3.5% savings bank rate of interest, the Reliance Power is expected to earn anywhere between Rs1000 crores to Rs1500 crores as interest on the application money!! The grey market premium for Reliance Power is already around Rs400/- per share, which means that the listing can be expected around Rs850-900/-.

What is creating euphoria about the Reliance Power IPO?
  • Ambani's project execution capability is one of the corner-stones on which the entire IPO has been built. They have executed projects in record time and this time as well they may be able to do it. Real test for Anil Ambani as all the previous projects were driven by Reliance group and not by Anil Ambani alone.
  • I guess there is going to be a slew of announcements to follow post the Reliance Power listing or very close to the listing date. He may come up with stake sale announcements, acquisition of captive mines for Reliance Power fuel requirement, set up of equipment manufacturing company for power sector, merger of RNRL with Reliance Power and so on. Anil Ambani would like to keep the momentum going in the share markets for his company, as he may have plans of off-loading substantial stakes to bigger power manufacturers across the world. Already Anil Ambani has talked about setting up a power equipment manufacturing company.

Ambani's have been very popular with the shareholders because of their investor friendly activities. They have the capability of selling ideas in a big way and this time as well he has done it successfully.

Thanks to Reliance Power IPO, more and more analysis is being done on power sector and one stock which has come up for comparison is NTPC. If you take the comparison between the production capacities in 2010, Reliance Power would have 600 MW compared to 34,000 MW for NTPC. By the time, Reliance Power goes full stream in 2016, NTPC would have a generation capacity of close to 50,000 MW more than 100% of what Reliance Power would have.

By any standards, NTPC is a superior stock at current prices and valuations even after discounting for Reliance Power's management capability and vision. NTPC is one stock which I am going to buy at all possible opportunities.

Disclosure: I am not going to apply for Reliance Power IPO.

4 comments:

Anonymous said...

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Anonymous said...

Reliance Power IPO is a euphoria. There is a kannada saying that it difficult to say whether it is people's madness or the occasions maddness !! Going by projects of this size, the payback time would take sometime. Having said that punters and traders may make a quick killing and let the retailors hold the can. This also has shown how media, campaign and packaging can also help to raise this enormous amount of money. I was also amused for the two reasons : a) long ques to open DMAT accounts, especially on the day of the opening of IPO. This IPO was a known event for a long time so why wait till the last moment ?
b) consequently, does this mean that we have by this issue thousands if not more first time investors in the stock market ??

--adwait

Venkat Muthukrishnan said...

Dear Adwait,
Having a demat account and lending it for applying to Reliance Power IPO is a money making proposition. Business Line carried a detailed article how every demat account holder who is willing to lend his demat account would be making close to Rs7800/-.
Reliance Power is definitely a very good example of how good packaging and marketing can make a product successful. But the ultimate test of customer acceptance is based on the quality of the product, which is very doubtful in this case. Honestly, I have not heard the name of a company, Reliance Power till some 3 months ago.

Venkat Muthukrishnan said...

Dear Adwait,
Having a demat account and lending it for applying to Reliance Power IPO is a money making proposition. Business Line carried a detailed article how every demat account holder who is willing to lend his demat account would be making close to Rs7800/-.
Reliance Power is definitely a very good example of how good packaging and marketing can make a product successful. But the ultimate test of customer acceptance is based on the quality of the product, which is very doubtful in this case. Honestly, I have not heard the name of a company, Reliance Power till some 3 months ago.