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.