Reliance Power

What happens when faith defies logic? The situation can be nothing less than crazy. With global interest shooing away from the stable economies to emerging markets, it’s the liquidity that plays.

Reliance Power has been the biggest IPO in the history of corporate India with Rs 7.52 lakh crore being thown in for a Rs 11,700 crore offer. In fact, it has made a world record. BSE Sensex, the bellwether index of the Indian economy tanked 1713 points, while investors were keeping themselves cash ready for the investment.

So bullish is the sentiment for a company that has not even started its operations! In addition, it plans to further raise capital from institutional investors, diluting the stake. The offer opened at a price band of Rs 420 – 450, with retail investors being shown the opportunity to invest with the maximum allowable amount by just paying 25% of the value. Further, they had an offer of a discount of 20Rs per share, as icing on the cake.

The NDSL and CDSL saw some 10 lakh demat accounts being opened in 5 days, again an unprecedented event. The offer was oversubscribed some 20 times in the retail segment, and how many would get allotted is anybody’s guess.

Why this euphoria behind the POWERful offer? In the recent times, the group has come up with IPOs like Reliance Communications and Reliance Petro; the latter being under construction at the time of the issue. Both managed to draw investors like a swarm of bees; and suddenly everybody has an interest (read:stake) in Reliance. Fundamentally speaking, the valuation cannot be justified without the presence of existing operational assets. Upon listing, the volumes will push the price levels to 900 or even 1000. One cant even look at the PE levels, since the E part is 0. Such is the faith on Anil Ambani’s management; he is already the 3^rd richest Indian.

IPOs in the recent times have been popular only because of the listing gains. REPL has no different story. Analysts caution that the absence of any operating history does not justify the current valuation levels, and should be used primarily for making money on day 1.

Valuation is yet another area of concern. “We are unable to accord any definite valuation to the company since it has no operational assets,” says Emkay. The brokerage adds that valuations are stretched based on an individual project-based DCF approach. Equitymaster believes that “other listed power generators are available at much attractive levels than REL Power (where there is no underlying business to calculate the valuations!)”.

This week’s fall is expected to be made up upon the share allotment and listing. I haven’t invested myself, for I preferred making good use of the fall and investing in the blue chips at lower levels.

The poster boy has an excellent marketer. Using dabbawallas for sending IPO forms has been unheard of. I happened to see IPO forms being available outside Churchgate station in Mumbai, but this attempt to reach the masses is an attempt to arouse investor (or consumer) interest.

We are waiting for the listing..But the patriarch must be smiling up there.