Speaking to CNBC-TV18, , HNI said that he feels that the Reliance Power IPO looks extremely expensive at Rs 900 per share. He informed that the company's 28000 MW power will be operational in 2016. NTPC has 28000 MW with same market cap, he added. At Rs 900, both companies are trading at same market cap, Sandeep Madan said.
Excerpts from CNBC-TV18's exclusive interview with Sandeep Madan:
Q: Are there any worries about looking at current market conditions on where it will eventually go on to list or HNIs like you still fairly confident?
A: Two different fronts; one basic concern which is there at the time of investing into anything is the fundamentals of the stock.
The bit of research that I have done on the issue shows the picture that this is not the best possible because right now, they are talking about generating 28,000 MW by 2016 and if they get listed at Rs 900, they will be having the same marketcap as NTPC, which is currently producing the same amount of power. And if their CEO is to be taken for his word, by 2016, they will be producing three times more and the marketcap of both the companies remains the same as if listing is at Rs 900. So either NTPC ends up being highly under priced or this issue is extremely overpriced if it gets listed at Rs 900. So that's one concern on the fundamentals of the issue.
Second, from the oversubscription side and applying for the IPO, one hasn't seen this kind of frenzy ever before in the markets. The lending agencies that do leverage applications for investors are looking at making a killing in hair. The kind of interest rate they are talking about, I heard them was in the movies where moneylenders use to lend money at those rates.
Here the person who is going to be taking the risk, would end up being the investor because of the two major variables - one would be the listing price, obviously, and second would be the oversubscription because that will determine the amount of stock that one gets allotted whereas the lending agency would make the money on the leverage interest amount irrespective of the listing of the oversubscription.
Q: What's the math you are working with by way of and oversubscription. How much do you think it's going to get oversubscribed particularly in your category and how does that change the leveraging scenario for you?
A: There are different numbers floating around in the market; there is no clear way of determining except for the book size which these lending agencies carry. But seeing that, the calculations have gone long earlier also, when we applied for the likes of Power Grid and Mundra where money came from somewhere but nobody is able to put a finger where from, because these lending agencies, the amount of money they are pumping into the IPO market is a set amount.
If one calculates based on that, then the oversubscription got to remain below 100 times. But somehow there is ample liquidity in the system and for returns which are crazy. For interest arbitrage right now, money is being raised and what kind of money can be raised for this particular issue could surprise all of us depending on the amount of money that comes into the system; oversubscription will go. But definitely one is looking at closer to 200 times or more.
Q: What is your sense of the grey market now and if the issue is oversubscribed, more than 200 times would HNIs who have leveraged still make money?
A: The grey market premiums are being spoken about at around 350 but saying that I don't know or there is no historical facts or comparisons ever made to say if grey market is quoting a certain price, the issue would only list at the same price itself or for that matter saying that for a IPO of this size where at Rs 900 is going to be a marketcap of the company of two hundred thousand crore. With that kind of price, who knows - this grey market could be driven by people whose interest are involved and for every bigger IPO, similar numbers could be there.
This IPO is something which is going to be a trendsetter for coming IPOs and if the like of comes to the market; we are hearing about BSNL coming to the market- there is lot of money that is going to be required to be subscribe into those and this grey market premium is Rs 350. If the listing is Rs 350 and above, HNIs will still make money on the leveraged positions if oversubscription is around 200 times - that's what my calculation shows.
Source : MoneyControl
