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Powerful IPOs: Betting on growth
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Monday, January 14, 2008 |
For investors who tasted blood with the listing of the Power Finance Corporation (February 2007) and Power Grid Corporation (October 2007), the expectations from a wave of power stocks, and particularly the Reliance Power IPO run very high. PFC has risen more than 210% from its issue price and PGCIL about 175%.
The two stocks had listed on NSE at a premium of 32% and 73%, respectively. A company comparable with Reliance Power (RPL), NTPC which listed in November 2004 at a premium of 42% (NSE), has risen about 360%. Thus, investor frenzy for the RPL IPO which opens on Tuesday is to be expected, despite several analysts writing off the issue as very expensive; book value per share at more than seven times compared to 4.6 times for NTPC.
Unlike public sector peers, RPL has the advantage of the Reliance brand that enjoys a great reputation among investors. Potential investors thus reasonably expect their investments in the stock to add to their wealth. The re-rating of the power sector stocks over the past year, equipment manufacturers such as BHEL included, has served to embolden others in the sector to tap the capital market.
At least eight power companies (including RPL) are expected to collectively raise over Rs 31,000 crore in the course of the year to add generation capacity in excess of 56,000 MW over next 5-6 years. These include Sterlite Energy, Essar Power and JSW Energy.
India is power starved and needs to add more generation capacity to sustain the 8-9% GDP growth over the next five years. The Eleventh Plan (2007-2012) envisages capacity addition of 78,577 MW; much of which has to be in the private sector. But the potential for growth does not translate into low risk for the investors.
The power sector is mired in politics and tariffs are regulated. Generating companies have to sell a large portion of the output to state electricity boards at a predetermined tariff as per a power purchase agreement, and only surplus generation can be sold at market-determined prices. With increase in supply, these market-determined prices could fall.
Power projects also face the risk of disruption in continuous supply of fuel, delayed payments from SEBs and environmental issues. Investors in the power sector stocks must fully realise the risks involved.
Source : http://economictimes.indiatimes.com |
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posted by Unknown @ 11:15 PM  |
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