Read before applying for Reliance Power...

Originally Posted by sunilm02

A year back if one had said that Rel Petro would reach 200 level, people would have called him mad and crazy and "FOOL".

Originally Posted by milind857

Friends,

I have got this info from mail from google group, thought that I should share with u.........

Can u have a look at this also?

If the Indian stock markets were to have its own alphabet list, then
'R' would have stood for 'magic'! In an act that would embarrass the
wizards in Harry Potter's school of magic, Reliance Power IPO intends
to raise US$ 3 bn through India's biggest ever IPO. This for funding a
business that does not exist. And a business that will earn its first
penny almost 2 years down the line - if things go 100% as per
schedule! This IPO sounds more for professional long term investors
like private equity firms than for retail flippers and the general
public.

The Reliance Power IPO (the latest item in this magic show) has been
priced between Rs 405 and Rs 450, and is slated to raise around Rs 120
bn. What is more, retail investors are supposedly being lured to
subscribe to the IPO by way of a 5% discount and a deferred payment
scheme.

Will you buy a paper of Rs 10 for Rs 450 and accept a discount of 5%?
Bad deal, isn't it? But then you may ask that as per your agent, the
'value' of this stuff is Rs 650 based on the fact that if you were to
manufacture it on your own, you would end up spending Rs 650 on it
(replacement value theory, you know!). Well, that is a valid
argument.

But is your agent telling you that if you were to manufacture this
stuff (worth Rs 650), it would take you a minimum of 10 years to get
the final output? No? So why does he want you to pay up the full Rs
650 now (in 2008) for something that will see value in 2015, or 2016
or 2017? Is he asking you to be patient for your returns? Yes! But are
you asking him why he should get the entire commission upfront when
you shall realise the value in 10 years time? Probably not!

Your broker or advisor may tell you that the gray market premium for
the IPO is almost equal to the offer price indicating the strong
demand for the issue. And you might be lured into believing that since
everyone else is buying into the IPO, why not you?

We are confused! We are not sure how to put a price to this IPO, as we
do not have the underlying numbers to support the same.

The issue has a list of well-known investment bankers. According to
the management, one of their investment bankers believes that the
price will pierce the "four figure" mark on the day of listing.

It may. But does it deserve to?

We mean, someone may walk in the door and offer us Rs. 1 lakh per
square foot for our humble office space but that does not necessarily
mean it is worth that much.

And should investment bankers be making those sort of claims and
statements on future share prices? But that is the nature of the
investment banking business. They work for companies. Their fees are a
function of how much money they raise for the company.

So what an investment banker says, should be taken with a pinch of
salt.

Around all this hype surrounding the issue, here is our take on the
pluses and minuses.

It is a negative that the company, which is now talking about adding
28,000 MW over the next 7-8 years has a parent, Reliance Energy, which
has not added 1 MW of new generation capacity for the past many
years!

Reliance Energy had also proposed to set up the world's largest gas
based generation unit 3 years back but that has yet to materialise. We
recognise that this particular project has suffered because of
political influence and infighting between the brothers on the fuel
issue. But that is the point. Mega projects attract mega headaches.
What is the guarantee that these sorts of issues will not dog the
ambitious power plans of Reliance Power?

What about getting required land and equipments for these projects?
What about the fact that company itself does not have any past
experience in mining coal? What about gas supply and pricing?

We are not saying that it is a bad project or that the management of
Reliance Power cannot make this work. We respect their ability to
execute and deliver projects - unless there are political issues that
crop up or family issues that spill over into the public arena.

But these are time-sensitive issues that can hurt the returns on any
project. These are serious issues, even more serious than the
financing part (after all, so many hands can lead funds to these 'all-
in-the-air' projects) that investors need to understand before they
get the shock! But is anyone listening while betting on the magic of
the name?

Power is definitely in short supply - no one can argue with that. But
the valuation of power stocks that are already listed on the stock
exchange (including Reliance Energy, Tata Power, BSES, and NTPC) seem,
well, a little rich now. But is anyone worried about that? On being
asked about the basis for the issue price of Reliance Power in the
analyst and brokers' meet yesterday, the management talked about how
the valuations of Reliance Energy have shot up over the past few
months and how it has led to a 're-rating' of the entire power
sector!

Originally Posted by rangarajan

By Mid January 2008, India's largest IPO till date, the Rs 11500 crore Reliance Power IPO would have opened, and though CNBC and its leadership have been at the forefront of a campaign to avoid the issue, a closer look might suggest beneficiaries lie elsewhere and so the Issue must be successful.

-7000 MW of Power Generating Capacity proposed by Reliance Power will cost Rs 28,000 to Rs 30,000 crore ande become available by 2011.

-Overall Capacity of Reliance Power Will rise to 26000 MW by 2016, and cost Rs 104,000 crore.

-Beyond the Equity element of Rs 11500 crore, Banks and FIs will fund the balance Rs 90,000 crore as Debt. If CNBC is to be believed, then all Banks should have substantial NPAs and possibly close by 2016. So why should we not pull out all our money and stuff under the mattress.

-In a Power Gen project, 95 per cent of the Investment goes into land rest into Equipment. Here we are talking of a collective order book for Siemens, Alstom, Bhel and ABB of the magnitude of Rs 95000 crore which 4-5 times the Revenues these concerns generate in a year.

-This will need Building up of New Power Plants by Bhel, Siemens, Alstom and ABB unless the Equipment gets imported.

-The Power Grid and Transmission Capacity will have to be raised to enable this additional power generated to move. This will imply higher demand for Crompton Greaves, Areva, Bharat Bijlee, Jyoti Structures, Sujana Tower and RPG Transmission.

-There will be additional requirement of Steel Wires, Steel Structurals and fresh production of Steel making capacities to sustain this growth in Demand from the Power-Downstream segements. So Iron Ore Mines and Mining Equipment manufacturers like Revathi, Atlas Copco, TIL and Ingersoll Rand will be favoured.

-Then there will be the producers of electricals Havells, Genus, LNT, Indo Asian Fuse Gear, which will need colossal amounts of circuit breakers, switchgears and modern tripping systems.

-Finally, we will need more Coal mines either in India or Overseas to sustain these Thermal Plants which are proposed to be set up by Reliance Power, and there might be some based upon Gas and Nuclear Fuel, for which separate fuel requirements will have to be met.

-At roughly $ 30 bn of direct investments Reliance Power would have cost about 3 per cent of India's GDP by 2016 and will add about roughly $ 40 bn or 4 per cent of India's additional GDP by 2016.

-Overall success of Reliance Power will imply prosperity for millions of people in the country who have waited for 6 decades to see Light and Employment.

-A success of Reliance Power will also mean a success of the GOI policy to promoter Ultra Mega Power Plants with a single location capacity of 4000 MW and costing anywhere between Rs 16000 to Rs 20000 crore and prime examples are Sasan, Mundhra and Krishnapatnam bagged by Tata Power and Reliance Power.

-Most of these UMPPs will be set up as Special Purpose Vehicles and listed in Overseas nations, minimising risk for local investor and broadbasing investor participation. If SPVs were not there none of the mammoth Real Estate projects being set up by DLF or Unitech go off the plinth, but they are going ahead.

-Reliance Power too is not headed by fools, and so most of their expansions will come under SPVs minimising risk.

-More importantly Promoters and QIP are taking placements at the same price as general investors, so where is the self aggrandisement of Mr. Anil Ambani?

-Even as I write there is a Power cut in Delhi and it has lasted 2 hours a day for most of this Winter and for the past 44 winters I have seen the scenario has been ranging from grim to pitiful.

-I remember standing in Queues to pay power bills in the past, to crooked GOI servants, and these people now work under Reliance Energy and Tata Power Distcoms in Delhi without creating problems for civillians.

-The GOI intends to put up 8 such UMPPs costing Rs 160,000 crore over the next decade. Will all these projects too would be unviable as per CNBC or do we see a massive transformation like China, which set up one Thermal plant every week for the last 5 years?

-Stock valuations are a trade-off between High Initial Equity sold at par or Low Equity sold at premium, to generate better earnings per share for the Investors. It can be argued whether the pricing of Reliance Power is aggressive, to caste motives on the management is incorrect.

-Each and Every Investor has the right to or not to participate in the Reliance Power issue, and thus far no one has put a gun to anyone's temple for putting a application in the IPO. This is a conscious choice each investor can make without recourse to the gigolos at CNBC and the sluts they display daily.

-To the best of my knowledge no journalist ensconced in cushy chairs and luxury clothes have ever had a hard days work setting up a power plant, pulling transmission wires over deserts and hills or dug up mines in sub human conditions. If they had done anything of this magnitude they would not have taken sides on the Reliance Power issue.

-If the guys in the media were to be believed the Mundhra Port would have never happened, neither would have Pipavav and Natural Gas would not have been found by Reliance but by Ongc. That the private sector is thriving and contributing needs to be appreciated and backed up by investors.

-Those who cannot take risks or will not hold out for 10 years have better options in the Power, atleast 20 of them and they would do well to take their money elsewhere rather than be a part of the Valuation, PE, market cap to Sales and Book Value story being popularised by Reliance Power.

-7 years ago TV18 had come on-stage with a bang listed at Rs 1600 a share, today the CNBC guys are rich even after excercising their stock options at ludicrous prices, I think "history got repeated" but those guys instead of repenting are condemning others.