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Review of Reliance Power IPO
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Wednesday, January 9, 2008 |
The much awaited “Reliance Power IPO” is all set to hit the markets on 15th January.
How good is this IPO? Should I invest in Reliance Power IPO? What are the basics to look for while investing in the Reliance Power IPO?
Before we get into the details, let’s look at some of the latest news items.
More than 1 lakh Demat Accounts will be opened in next 3 days just for the Reliance Power IPO. People stood in the queue for hours in various brokerage firms to get the accounts opened for their family members. Just for getting a demat account so that they can apply for the maximum possible number of shares in the Reliance Power IPO.
Grey Market Trading: is going on for this IPO. Against the offer price band of somewhere around 400 to 450 Rs. per share, the current grey market price is trading at a whooping 900 Rs. or so (as per the news) – almost double that of the offer price.
What do the above news items tell us?
First thing – the IPO is eagerly awaited. And it will be heavily subscribed. No doubt about that. But what it means to we, individual investors? It will mean less allotment and hence hopeless returns than what we expect. The mathematics of IPO share allotment and probability calculations are covered in this article.
If we go by the grey market trading prices, then the Reliance Power Company at the grey market rate of 900 Rs. will be valued at something like 2 lakh crores. Current valuations suggest that even if the company manages to double the proposed power production, then also it will take atleast 3-5 years for the company to justify the price of 900 Rs. a share or a 2 lakh crore valuation. That too everything goes well with double the proposed production. So from the valuations perspective and the grey market trading prices, the issue does not look very attractive even in the long horizon of 3 to 5 years. May be the company discovers something really great and that turns out to be a great profit making business, otherwise the grey market prices are not justified.
However, we need to understand that the grey market prices are the once that are setting the returns expectations. If one can get out of this expectations business, then it may be justified. Still due to the euphoria, the less allotment of shares will mean no significant profits.
As covered in the article, Stock Picking: Good Company v/s Bad Company, I had quoted the example of TCS IPO. That IPO also had grey market trading. Against the offer price of around 775, the grey market price was trading at 1200. However, on the listing day, the closing price of TCS was just 998. What happened?
No one knows. Even though the grey market trading was going on at 1200, the close price was 998, well below 20% of the grey market trading price. Later, in a few months, it went down further.
Some day or the other, the market comes to its senses. For TCS, it came to sense on the very first day – later even more. What can happen with Reliance IPO, only time will tell. Both Reliance and Tata are well trusted houses in India, so definitely the craze that went on for TCS IPO, much more than that will be for Reliance Power IPO.
Now the problem does not stop there. Let us not forget what happened with the IndiaBulls IPO and the follow up. IndiaBulls shares were offered at 16 Rs. However, it started climbing like crazy and went up like a rocket. Seeing that performance, Other brokerage firms like IL&FS, who were initially planning to launch their shares at a mediocre rate, doubled or even quadrupled their IPO price. The list includes IL&FS, Religare and recently concluded Motilal Oswal issue.
If this Reliance IPO is successful, then JP Associates and other power companies are also in the line. They will become very demanding for their IPO, which might ultimately trigger a high price for the entire power sector.
Ultimately, what can be done here? To invest or not? Well, I have always been of the “Randomness Opinion”, and the probability value calculations tell me that my money is better safe in the bank Fixed deposit savings account. One may take a chance, lucky if you are allotted, unlucky if no or less allocations. All the best!
Source : Finance, Investments n Trading Labels: Demat Accounts, Grey Market, Reliance Power IPO, Review of Reliance Power IPO |
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posted by Unknown @ 6:56 AM  |
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A right royal abuse of power - Reliance Power IPO
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Monday, January 7, 2008 |
The most awaited event of the Indian primary market calendar is here. Reliance Power may have priced its IPO in the Rs 415-450 band but the active grey market price is Rs 900. This gives Reliance Power a potential listing market capitalisation of Rs 2,00,000 crore. With zero installed capacity today, expected generation capacity of 6,000 megawatts by 2011 and 26,000 MW by 2016. NTPC, in itself a richly valued stock, has an installed capacity of 27,000 MW and commands a similar market cap. The market has simply taken an eight year leap and priced it in the Reliance Power stock today. I find that staggering.
A look at the ratios look even more mind numbing. This IPO money is being raised to execute about 7,000 MW of capacity. That should be done by 2012. That year, if all goes perfectly, Reliance Power will have revenues of Rs 7,700 crore, EPS of under Rs 8 and a book value of Rs 70. At the listing price of Rs 900, the stock would be trading at a 2012 price-earning ratio of 110, a price to book value ratio of 13 and a market cap to sales ratio of 26. These are four-year forward ratios, remember. The ratios moderate somewhat for 2016 but by then much further dilution would have happened to finance the additional capacity so the market cap would balloon substantially.
This is madness. While many explanations abound on how such valuations could be justified, this is so similar to the 100-plus PEs the market gave freely to information technology stocks back in 2000. While all of us know how that story finally ended, we should also remember how long that madness continued. The power madness, too, will end, sector tailwind notwithstanding, but it may continue longer than we think it can before fizzling out. While it lasts, the most expensive stock in the sector will become the valuation benchmark and will pull the others into the clouds. Just remember the old adage: those who forget history are doomed to repeat it.
- By Udayan Mukherjee,
(The writer is Executive Editor, CNBC-TV18)
Source : http://paisapower.blogspot.com/Labels: A right royal abuse of power - Reliance Power IPO, Grey Market, IPO, Reliance Power, Reliance Power IPO |
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posted by Unknown @ 10:03 PM |
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Grey mart: Rs 1L in Rel Power IPO will earn 9% in 20 days
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Thursday, January 3, 2008 |
Grey mart: Rs 1L in Rel Power IPO will earn 9% in 20 days
Reliance Power (REPL) seems to have electrified grey market operations in Ahmedabad with operators willing to shell out as much as Rs 9,000 for every application of Rs 1 lakh.
In the bustling grey market in Gujarat, such high rates are unheard of. The last benchmark for hectic activity was the Mundra Port and SEZ IPO in November when the grey market started buying applications for Rs 7,500 in the last stages of the issue.
With the REPL offer ready to hit the market on January 15, the grey market is trading the shares and the applications. It basically means that if you have Rs 1 lakh to invest when the IPO opens, you have a secured 9% return within 20 days of closing of the issue when the stock would be listed.
After Sebi cleared REPL’s IPO, grey markets had resumed trading in the stock with premium saudas (trades) at Rs 340-350 and application buying rate at Rs 7,500. While the premium has zoomed to Rs 390-400, the applications rate touched Rs 9,000 and could break the Rs 10,000 mark by the time the IPO hits the market, sources said.
The excitement on the counter in the grey market has come on the heels of news that REPL will offer 5% discount to retail investors, who will also get an option to pay only 25% of IPO amount at the time of application.
Source : http://timesofindia.indiatimes.comLabels: Grey Market, IPO, Rel Power IPO, REPL, Retail Investor, SEBI |
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posted by Unknown @ 7:25 PM |
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