Retail as well institutional investor interest is very high for the Rs 10,260 crore initial public offering (IPO) of Reliance Power, which opens for subscription on Tuesday.

"I am applying for the Reliance Power IPO to the fullest limit allowed to retail investors. It is a Reliance company and a sure bet,"  said an investor who wished not to be named. The brand Reliance and Ambani is what is creating the frenzy and investors are not keen on looking at the fundamentals or finer details of the issue.

The grey market premium for the IPO is at Rs 450-500 and marketmen hope for a listing price of Rs 950-1,000. Brokerages are flooded with investor queries on loan facilities for subscribing to the biggest IPO in the country, and at the retail level there is a marketing drive that has not been witnessed in the recent past.

Market experts say the issue is overpriced, as Reliance Power will start earning only after its first generation unit —phase I of the 600 MW Rosa Power project in Uttar Pradesh — goes on stream by December 2009. Until then, at zero earnings, the stock, no matter at what price, will be trading at an effective price-to-earnings multiple (P/E) of infinity.

"National Thermal Power Corporation is the least valued stock in the power pack at a P/E of 30.94. Reliance Energy is trading at a PE of 65 and Tata Power at 60.26. However, the Reliance Power IPO may be a story similar to that of Reliance Petroleum, which hovered at low levels after issue and started rallying recently," said Alex Mathews, research head of Geojit Financial Services.

Though the issue is overpriced, it still may well be of the kind to sell on listing day to exit with substantial gains.

Source : hindustantimes.com