Reliance Power or Muscle Power?

Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Our stocks. Buy hold or sell - The help ourselves Board
Forum Discription: What do we do with our stock portfolio.Ask any member and for a short opinion.If you know something about a particular stock do tell the forum.These will later be put in as seperate topics
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=1301
Printed Date: 03/May/2025 at 6:10am

Topic: Reliance Power or Muscle Power?

Posted By: mukesh
Subject: Reliance Power or Muscle Power?
Date Posted: 21/Oct/2007 at 1:27pm

Making of Reliance Power

§ The group had an existing shell company called Reliance Public Utility Private Limited (RPUFL). RFUPL, at that time, had a paid up capital of Rs One lakh.

§ The authorised capital of RPUPL was increased to Rs 1000 crores by a resolution dated July 30, 2007.

§ Anil Ambani’s personal investment company and Reliance Energy Ltd (controlled by him) invested Rs 500 crores each, in the equity share capital of RFUFL on August 3, 2007. RPUPL is still a shell company with just Rs 1000 crores of share capital and Rs 1000 crores investment made only in Anil Ambani’s group of companies. Thus no money would have gone out of the group and REL’s money is indirectly diverted.

§ RPUPL and RPL pass the necessary Board for merger of RPUPL into RPL. Both the companies file a scheme of amalgamation in the Bombay High Court in the first week of August 2007, that is, immediately after infusion of Rs 1000 crores in RPUFL.

§ The rationale of the merger, as stated in the Scheme of Amalgamation was “RPUPL has put in considerable efforts in acquiring necessary technical and manpower skills which are ancillary to the business of RPL. RPL can take benefits of this specialised skill sets and technology available with RPUPL to undertake mega power project and implement them more efficiently and successfully,”

POINT is how the shell company, having only One lakh capital till July 31, 2007, acquired the skill sets to implement a mega power project.

§ Thus Anil Ambani and REL both acquired, on September 30, 2007, 250 crores shares of Reliance Power each for a consideration of Rs. 1000 crores only. This was also infused into RPUPL only on August 3, 2007, within one year prior to public issue.

§ As per clause 4.1.1 of SEBI(DIP) Guidelines, the promoters shall contribute at least 20 per cent of the post issue capital in a public issue by an unlisted company. As per clause 4.6.2, the promoters have to contribute this 20 per cent at least at the IPO price if they have contributed this 20 per cent during one year preceding the public issue. The250 crores shares of Reliance Power which, have been allotted to Anil Ambani’s personal investment company and REL pursuant to the amalgamation attracts these provisions and he cannot come out with valuation of RPL below this limit. But he is violating these provisions.

§ Now Anil Ambani holds 50% in personal name in reliance Power Ltd and Reliance Energy Ltd holds rest.

Transferring projects of REL to RPL

§ REL has been awarded large and mega power projects for 24200 MW. These power projects include prestigious projects like Sasan, Dadri, Rosa etc. These projects have been secured in the name of REL with the financial and technical strength of REL have been transferred to the said Company RPL by means of some internal MOUs & understandings. By means of such a transfer of business and creation of another shell company to issue public shares, now the power generation profits will accrue to the new company REPL in which Anil Ambani holds 50%.

§ The funds required for these projects could have been easily raised by REL. If at all there was a problem it could have made the subsidiary public like in case Reliance Petroleum Ltd where RIL diluted 25% to set up new refinery and Mukesh Ambani do not hold any personal stake in Reliance Petroleum Ltd.

§ In DRHP it is clearly visible that MOU has been signed with REL for evrything and every process. The new Company has no resources at its command for executing these projects and instead is totally dependent on REL for entire support – be it technical, manpower, commissioning, even guarantees for raising finances. Even entire management of REL is “deputed” to RPL. Then what is REL doing on its own? What skill sets it has?

§ RPL itself has no experience or capability of implementing these projects and thus the valuation of the Company is purely reflecting the strengths of REL for these projects. Thus whatever valuation of 70000 crores is the value of the projects that have been stripped off from REL If this Public Issue happens Mr Anil Ambani will enrich himself by Rs 35000 crores, at the expense of crores of Indian public.

§ Section 291 Companies Act provides that significant assets of the Company can not be transferred without the approval of the shareholders. It is also a fiduciary duty on the Directors of a Company to ensure that the assets of the Company are used for the purposes of the Company and enhance the wealth of its shareholders. The Act restricts in several ways any transaction between a director and the Company to ensure that the director should not misuse his position for any personal gain.

§ If these projects would have been implemented by REL, the valuation of REL would have been higher by this amount and thereby benefiting the shareholders of REL directly and millions of Indian Public indirectly through the gains made by the Public Sector Insurance Companies.

§ It is surprising to note that LIC being one of the major shareholder and having a nominee director on the Board of REL, in Mr V.R Galkar has remained a mute spectator and has not even attempted to stop this . The Analysts suspect collusion between the promoters of ADA group and the nominee director.

§ From the prospectus it is very clear that Reliance Power will not be subsidiary of REL. Instead it seems like an another company from ADAG group. RPL would be implementing 12 Power projects in India having a capacity of 24200 MW. Further the draft prospectus unambiguously declares that REPL will be the primary vehicle for investments in the power generation sector by the ADA Group. Thus what is the future of REL? Shareholders of REL have been deprived of the entire power generation business prospects to be accrued to them who have invested their money for.

§ Indian Insurance Companies namely LIC, GIC, NIC, OIC, UIC & NIAC hold 21.50% of the equity capital of Reliance Energy Limited with LIC alone holding 14%. Individual Indian Public hold 12% of REL. So how LIC & other Insurance companies have failed in their duty and obligation to protect the interest of the general public who have invested their hard earned savings in the Insurance Companies.

§ Allowing this public issue will set a dangerous precedent and Foreign Investors will lose faith on the integrity of Indian capital market regulator SEBI.

Source: Articles on Merinews, "Googling power"

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Life gives answers in three ways-It says YES and gives waht u want. It says NO and gives u something better. It says WAIt and gives you the best

Replies:

Posted By: mukesh
Date Posted: 21/Oct/2007 at 1:38pm

As regards the Rel Power IPO i am agitated because the thing which is wrong shall be condemned.

Here what will happen to all the equity analysts like us who may have given a BUy on Rel Energy looking at these projects and expecting cash flows from them. What will be their answers for clients questions?

No2. If this is happening with REl Energy tomorrow will happen with RCom say DTH will be taken private name?

ALready we are seeing whats happening in Adlabs that the production is stopped and instead is carried on the personal name.

If this trend continues what will be the future of our capital market Is this the right place to invest and right place for research analysts who want to earn their food at capital market.
There is no reason why the IPO shall go ahead

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Life gives answers in three ways-It says YES and gives waht u want. It says NO and gives u something better. It says WAIt and gives you the best

Posted By: basant
Date Posted: 21/Oct/2007 at 10:07pm

Capital markets is the right place but obviously some companies whose promoters are worse then vultures may not be the best place to make money.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: rai.abhisek
Date Posted: 22/Oct/2007 at 4:10pm

I disagree with your comment. This blog seems to have been fueled out of the story being circulated by the Mukesh Ambani comment. I believe this IPO is a great step by the ADAG group, i am a user of Reliance energy in Mumbai, their service has been truly phenomenon would expect the same from their forthcoming ventures as well. I think the group overall has not only contributed to my personal wealth as an investor but has added up to my personal well being through their products & services. I say kudos to Anil, keep adding to my wealth , looking forward to the IPO. Go Anil Go is what i say .....

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Be clear & be true

Posted By: smartcat
Date Posted: 22/Oct/2007 at 4:24pm

I think the group overall has not only contributed to my personal wealth as an investor. I say kudos to Anil. Go Anil Go is what i say

Abhishek, it looks like we are kumbh ke mele mein bichde hue bhai.

Let's find out. Introduce http://www.theequitydesk.com/forum/forum_posts.asp?TID=17 - yourself here .

Posted By: deveshkayal
Date Posted: 22/Oct/2007 at 4:30pm

Abhishek (Bachan) + (Aishwarya) Rai = Abhishek Rai !!!

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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett

Posted By: smartcat
Date Posted: 22/Oct/2007 at 4:38pm

I don't why but I don't like Abhishek Bachchan that much.

Posted By: basant
Date Posted: 22/Oct/2007 at 4:51pm

Originally posted by deveshkayal

Abhishek (Bachan) + (Aishwarya) Rai = Abhishek Rai !!!

I am told that this is the K- Virus (originating from Pune) and spreading across TED. It is affecting all smart cats and mammals

Posted By: smartcat
Date Posted: 22/Oct/2007 at 4:55pm

Although, some cats are born with this virus.

Posted By: tigershark
Date Posted: 22/Oct/2007 at 4:55pm

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understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things

Posted By: basant
Date Posted: 22/Oct/2007 at 5:55pm

Originally posted by rai.abhisek

I wish your comments were true. That any of us had acess to Mukesh bhai and well we would have loved to be influenced by the 4th richest man of the world!

Can you explain a bit as to how that electricity from reliance ENergy is different from say a Tata Power? Electricity is electricity and as long as the tube lights up I do not think anyone would care to note whether that tube is being lit up through Reliance energy or Tata Power - that is if both cost the same and if Reliance Energy's rates are cheaper then we have a problem in our hand as shareholders.

BTW I think power is the most lousy of all businesses. Utilities are referred to as widow stocks in the US because they grow slowly and pay back dividends, is capex intensive.

But from what I hear Reliance Energy's fall from 1900+ to 1300 would have made it a widow stock here in india as well most punters would not have been able to handle the fall.

On a serious note just check the RoE's, growth rates and the PE's of Reliance Energy and then it would be clear how much sense those valuations make.

Posted By: omshivaya
Date Posted: 22/Oct/2007 at 6:19pm

Originally posted by basant

Originally posted by rai.abhisek

I wish your comments were true. That any of us had acess to Mukesh bhai and well we would have loved to be influenced by the 4th richest man of the world!

BTW I think power is the most lousy of all businesses. Utilities are referred to as widow stocks in the US because they grow slowly and pay back dividends, is capex intensive.

But from what I hear Reliance Energy's fall from 1900+ to 1300 would have made it a widow stock here in india as well most punters would not have been able to handle the fall.

On a serious note just check the RoE's, growth rates and the PE's of Reliance Energy and then it would be clear how much sense those valuations make.

"Electricity Bills twice-thrice as much as it really should be. Even after repeated compaints and checking by the Reliance Elec. guys, nothing is solved. The customer has to make rounds of Reliance's office, to prove that he is NOT using that much electricity. Almost 2-3 months of harassment and agony for the customer."

I am sorry, but many people I know do not have such a good impression of Reliance Power. I am just presenting another side of the coin Rai jee, nothing personal. Hope it helps anyone!

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: johnnybravo
Date Posted: 22/Oct/2007 at 6:29pm

THat's 100% fact, Om ji....
I have experienced the same with my RCom FWP phonewa!

And one fine day after getting frustrated, I surrendered the phone, its been 1.5 yrs and I am still waiting for my refund deposit money. Reminded all involved in the chain, but seems like nobody is really bothered...

One consumer case is due on RCom for sure -- I know a frnd who makes money just by dragging all hopeless service providers (not just telcom) to courts and makes money from it LOL

Posted By: tyler_durden
Date Posted: 22/Oct/2007 at 6:35pm

main bhi apna IPO nikal leta hun...muscle power to main bhi bana raha hun ....

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If you aren't fired with enthusiasm, you will be fired with enthusiasm.

Posted By: smartcat
Date Posted: 22/Oct/2007 at 6:40pm

Quoting from Equitymaster.com -

Reliance Energy operates in an industry, which is largely dependent on the government's initiative for growth. To that extent, growth opportunities are dependent on government policies. Moreover, the tariff applicable in the license area is based on an assured rate of return of 14%, at a particular plant load factor, on capital employed. Already there are talks to either reduce this assured return to 12% or hike the applicable plant load factor. If that happens, the company's profitability will be under pressure

Posted By: omshivaya
Date Posted: 22/Oct/2007 at 6:53pm

Originally posted by tushar

THat's 100% fact, Om ji....
I know a frnd who makes money just by dragging all hopeless service providers (not just telcom) to courts and makes money from it LOL

It's a very lucrative business in USA. I wish the lawmakers of India were stringent enough, then people like us would have another way of making a living.

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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it

Posted By: basant
Date Posted: 28/Nov/2007 at 8:23am

Originally posted by gyansr

It might not be with CLB, coz such things had been practiced by many big promoters in recent past and no body even scoffed at them.

A case in point is RCOM. Every body knows the story and how Ambanis come to hold 76% stake in that company without spending any money. All the ivestment in RCOM was done by Reliance. Ambanis at that time held less than 40% in Reliance. So, they should have been owners of just 40% of RCOM. But somehow Mukesh Ambani w/o investing anything owned around 50% of that company.

Same thing is now played out in R Power. Actually the company should have been 100% owned by Reliance Energy, but junior Ambani somehow got 51% percent of his own stake in R Power. It may still be acceptable coz R Power currently is nothing but a couple of approvals. and anyone can own approvals w/o spending money(in theory only).

This has been my biggest surprise. Inspite of such alleged blatant violations of corporate governance norms Reliance group companies still manage to outperform tye market. Though I do not like the management and have never invested in their companies these companies always perform so this is one big exception to buying companies with a management that is not entirely minority friendly. Confused

Posted By: India_Bull
Date Posted: 02/Jan/2008 at 5:36pm

Issue opens on: January 15, 2008

Issue closes on: January 18, 2008

Price Band: Rs. 405 to Rs. 450 per equity share.

Till confirmed from reliable source, this is just a news.

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India_Bull forever Bull !
www.kapilcomedynights.com

Posted By: gcpradhan1
Date Posted: 02/Jan/2008 at 10:13pm

Thanks India Bull Jee for the update ! So 2 dhamaka IPOs are on the way. One side is Future and another side is Reliance Power. But we small players will hardly get any chance of an allocation. In that case either we have to pick from the market or wait till the stock get stabilized !!

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Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years - Buffet

Posted By: sanjay3
Date Posted: 02/Jan/2008 at 12:58pm

R-Power IPO: You can pay in phases +5% discount to retail customers

according to the economics times

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Posted By: pradeep
Date Posted: 02/Jan/2008 at 8:19am

Interesting !!!!!

http://deadpresident.blogspot.com/2008/01/reliance-energy-story.html - Reliance Energy - the story

Do you know-
One stock that has surprised almost every-one on street in terms of stock performance (no analyst could justify that on fundamental grounds !!!)
One company that has led to re-rating of utility valuations
One company with most flamboyant Chairman who never hesitates to paint rosy picture
One company that has miserably failed in past to deliver (investors paid premium valuations to this stock 4 years ago, but were let down)
One company who now plans the biggest corporate governance frauds (by floating the parallel company in same business to increase promoter shareholding)
One company that wants to be 30 GW over next 9 years, but don't know exactly how
One company (group) that believes they can get 10X price to book for their power plants today (while their first projects will begin construction soon !!!)

Well I am talking about RELE-Reliance Power here.

1. The stock performance took everyone for a big surprise and led to re-rating of all the utility stocks in India. The company today wanted to set up 30 GW capacity over next 9 years; let me remind you that the same company had promised to set up the largest single location gas power plant 4 years ago, while the main plant has not
been ordered yet. (It is easier for this stock lovers to say that gas didn't come through, so is it Reliance Energy's fault).. Well here is a question I want to ask, when investors pay premium valuations, they assume there is almost ZERO risk in project. And this company failed to live upto the investor expectations.

2. This company is doing the same mistake once again - while they have been announcing new capacities left - right - centre; do they now have fuel tie-ups for all their projects. (I believe they don't have fuel supply surety for more than 1-2 projects). Aren't they doing the same mistake again? Before you announce a project, a management is expected to do all sorts of due-diligence to make sure the project comes on time. (Unfortunately declaring projects can get you market-cap; why to bother about fuel linkages today.)

3. As far as Reliance Power is concerned, where is the need to float this company when Reliance Energy is there. If at all Reliance Energy wants all power projects should come in one SPV; why is Reliance Energy not having 100% stake in this SPV. WHY ANIL AMBANI OWNS 50% of Reliance Power and just 50% stake is given to RELIANCE
ENERGY. ANIL AMBANI has very smartly increased his share in the growing power capacity of Reliance Energy to 75% (50% directly and 50% through his holding in Reliance Energy, which holds 50% of Reliance Power), by just paying US$ 125 mn. And now wants US$ 25-30 bn for Reliance Power.

4. Promoter contribution to Reliance Power is US$ 250 million for 100% stake. They want to offload 10% stake for US$ 2.5 bn (this would lead to biggest investment appreciation, 100 times) in a span of 5 months of formation of Reliance Power). With promoters contribution a capacity of just about 1000 MW can be set-up. Imagine the situation
- entire risk of projects is on minority share holders (after listing of Reliance Power IPO, the money that comes in would be used as equity contribution for upcoming projects); and ANIL would create personal wealth of US$ 17 - 20bn (Direct and indirect stake on Anil post listing would be ~ 67.5% in Reliance power).

5. If promoters are really serious about their business, they should have atleast contributed full equity for first 8-10 GW, commissioned these projects and then come to markets. With the small promoter contribution of US$ 125 mn, if they want to set up 25-30 GW, it is quite clear that entire risk is being shifted to those who contribute larger sum (which is going to be minority share holders post listing; as I heard it that 10% stake would be offloaded at US$
2.5 bn). Are you ready to put your money to face all the entire execution risk connected to projects and just to make ANIL richer. Well I won't.

I believe a couple of broking houses would try to justify the RELE stock price (might do NAV for its power projects that he plans to), might revise their target price upwards factoring in US$ 25 bn or US$ 30 bn value of Reliance Power etc, just because they can't afford to lose the IB deal from Anil Ambani group..

What should an independent analyst do???

(Independent analyst may not be able to say BUY on the stock on fundamental grounds; may not be able to say SELL as-well because of momentum in the stock. But can very well release a note saying we decide to drop coverage on this stock because I simply don't understand this company. It would be a nice way to say we don't subscribe to what's going on in Reliance Energy and Reliance Power. Believe me lot of level headed fund managers would appreciate it. In
London people liked our view.)

Or else let us just do a IB deals for them and earn big brokerage out
of it rather than just give trading calls on this stock

Stock is hitting lifetime highs as we are reading this................................

Posted By: vijinat
Date Posted: 02/Jan/2008 at 8:50am

Originally posted by pradeep

Interesting !!!!!

http://deadpresident.blogspot.com/2008/01/reliance-energy-story.html - Reliance Energy - the story

Good article Pradeepji. Thanks. Below that article in deadpresident.com, there is a reply from a blogger which interestingly reads as follows:

Same story in their other company, no office, order, valuation,

business. The stock is climbing. Analysts no comments in this.

Even SEBI; u know, its RNRL.

One analyst (Rajat Bose, I think,) recommended yesterday that RNRL will go upto Rs. 210! Long live Analysts. And Ambani Jr. too!

Posted By: investor
Date Posted: 02/Jan/2008 at 10:08am

I read in ET yesterday that the group of REL retail investors (who had earlier gone to SEBI because of this problem to block the REL POWER IPO)
are now appealing with SAT.

Originally posted by pradeep

Interesting !!!!!

http://deadpresident.blogspot.com/2008/01/reliance-energy-story.html - Reliance Energy - the story

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The market is a place where people with money meet people with experience.
The people with experience get the money while people with money get experience!

Posted By: smartcat
Date Posted: 02/Jan/2008 at 11:07am

Forget retail investors - I suspect that QIB portion of the IPO will also be oversubscribed. I guess the word Q does not actually stand for 'Qualified' in QIB.

I'm not sure what kind of appreciation investors will get at $25 billion market cap with nothing much on the ground to show for. But, I've been wrong with Senior Ambani's RPL - it was a 4-bagger in a short time.

Who knows, I might be proved wrong with Junior Ambani's RPL too.

Posted By: investor
Date Posted: 02/Jan/2008 at 11:23am

Another thing which i dont understand is how CRISIL has given this a rating of 4/5, indicating "above average"

What methodology do they use for evaluation?
This is such a no-brainer that it should be avoided...

Originally posted by smartcat

Forget retail investors - I suspect that QIB portion of the IPO will also be oversubscribed. I guess the word Q does not actually stand for 'Qualified' in QIB.

Who knows, I might be proved wrong with Junior Ambani's RPL too.

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The market is a place where people with money meet people with experience.
The people with experience get the money while people with money get experience!

Posted By: gcpradhan1
Date Posted: 03/Jan/2008 at 12:01pm

Thanks Pradeep Je for the informative write up ! I also found a similar write up in NDTV news section. So these people are justing trying to become richer through unethical means !!!

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Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years - Buffet

Posted By: mukesh
Date Posted: 03/Jan/2008 at 12:17pm

I read the SEBI order on Rel Power IPO(being a CA student curiosity has to be there). Its clear that even SEBI views that SPIRIT of the law is not followed when it comes to sebi guidelines. and the merger was played just for bypassing the provisions and taking exemptions meant for genuine merger shemes. As such the shares taken by AA at Rs 10 will be made Rs 450 for other investors which otherwise was not possible.
Here is what SEBI says
It is noted that from the sequence of dates of the issue of shares to promoters,
approval of the Scheme of Amalgamation, filing the same with the Registrar of
Companies, allotment pursuant to the Scheme and subsequently splitting the
shares so allotted for the face value of Rs. 2/- each and filing DRHP with SEBI
offering 130 Crore of its equity shares having a face value of Rs.2 at a premium
to the public could no doubt be interpreted and conceived as a device to bring the case under the exemption of clause 4.6.4.

The exception to shares acquired pursuant to amalgamation has been provided for to facilitate genuine restructuring/ consolidation of going concerns prior to going public, on the premise that the promoters’ capital stands invested in merging entities over period and the merging concerns have had the benefit of that capital, which goes to the new entity upon merger.

Having these views still SEBi has cleared the IPO, its very confusing and reminds me of Amitabh in Sholay who goes to Mausiji.. says every bad habit of Dharamji and still says-"baki sab thik hai".

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Life gives answers in three ways-It says YES and gives waht u want. It says NO and gives u something better. It says WAIt and gives you the best

Posted By: s_praharaj
Date Posted: 03/Jan/2008 at 12:34pm

Now-a-days it seems, your ability to manipulate the stock prices have become more important than the performance of the company. The younger brother is a master in that. You can see, how he has taken the prices of all the stocks that he has acquired last year. But as long as your share price goes up. who cares, whether your company does well or not.

But at TED, we should be cautious. Now many penny stocks are in upper circuit conseceutively. These are not good times. I may sound a little pessimistic, but time to be watchful has come.

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Shashi Praharaj

Posted By: catcall
Date Posted: 03/Jan/2008 at 1:19pm

And as we speak, the grey market premium on this still- to -be -listed company is Rs.200/- !!

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There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing!

Posted By: smartcat
Date Posted: 03/Jan/2008 at 2:11pm

How does grey market trading work and how is the premium decided?

Posted By: catcall
Date Posted: 03/Jan/2008 at 3:18pm

Let's say you decide not to invest in this IPO. In this case, you can "rent" out your demat account to brokers/individuals/agencies who want to file in multiple applications (these may run into thousands!!) . You then surrender the right of ownership in case of allotment by a std. agreement. This means that in case shares are alloted in your demat account , they are automatically transffered to the broker. You get to keep the "rent" amount.

These brokers then assume that they will be holding a percent of delivery based positions at the time of listing. Since most of this is leveraged money, it is necessary for them to liquidate these positions immediately on listing to limit interest costs. Then the grey market trading starts. The valuation methodology is quite crude, based on demand and supply. But since it is kind of free market transaction , the first listing normally does take place near about the grey market price just before listing, but subsequent to allotment.

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There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing!

Posted By: smartcat
Date Posted: 03/Jan/2008 at 3:25pm

Nice scam.

Posted By: dhanabbal_g
Date Posted: 04/Jan/2008 at 12:42pm

NTPC has 27,000 MW of power gen capacity. In 2007, they generated 29% of generated power in india with 20% of installed capacity! they plan to have 30GW in 2012-proven execution capability. They plan to maintain their share of total installed capacity in future also. their plf is 89% well ahead of the average i.e efficient
They will raise money thro internal accruals for equity portion of expansion plans!
have long term aggrement with coal india !! have a subsidary for trading power!
hmm..somebody said, No company merit investment on a standalone basis. they merit only on a comparitive basis.
rel power ipo will be successful and there is something to learn/re-learn!
smarcat jee,
I am with you on rpl. I thought during ipo i can buy after 2/2.5 years or so.since no revenue for 3 years, it may not go far- i was convinced at that time. --- Not now -
learning Smile

Posted By: mukesh
Date Posted: 04/Jan/2008 at 2:22pm

The worst thing I feel is that almost all the newspaper, TV articles are presenting it as "Reliance Power, a subsidiary of Reliance Energy". whereas nowhere it is written or represented in DRHP or in media that it is a subsidiary. In DRHP they have mentioned it as a ADAG group company and co-promoted by Rel Energy. So its like an investment for Rel Energy and i dont think REl Energy will be able to consolidate the POwer operations in its books

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Life gives answers in three ways-It says YES and gives waht u want. It says NO and gives u something better. It says WAIt and gives you the best

Posted By: PrashantS
Date Posted: 04/Jan/2008 at 6:01pm

Well that is the work of the PR....remember the advertisement

Vicks ki goli lo khich khich door karo or
Zanduu bam zandu bam

Now the line is POWER POWER EVERY Where and only relaince ADAG has it

The mind is constantly brainwashed so that we become desperate to get it

Posted By: rakeshmehta48
Date Posted: 04/Jan/2008 at 6:16pm

GOVT AGENCIES ARE SLEEPING.

INVESTOR IS GREEDY AND WANTS HIMSELF TO BE LOOTED IN A ROYALE MANNER.

BUT STILL SHORT TERM GAIN IS POSSIBLE BECAUSE OF PROMOTER'S MUSCLE POWER (AND MANY INVESTORS MAY BE THINKING THAT THEY WILL OFF LOAD IMMEDIATELY AFTER ALLOTMENT)

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Fund Management is Most Important

Posted By: basant
Date Posted: 04/Jan/2008 at 6:37pm

while it is wrong to make a forward looking statement but there is no limit to how high stocks can go in a bull market but finally you cannot reinvent the wheel. The were sticks of valuation cannot be changed for ever though for the time being they do seem changed. Instead of worrying what people are doing I have started to concentrated on what I should be doing because finally we are all managing our money and when the sectors blast off there would be no shoulder for these greedy investors to put their heads and cry. It will happen not just with power but with a lot of the so called new sectors that seem headed for the moon.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: Mohan
Date Posted: 05/Jan/2008 at 12:14pm

Basantji,
On a scale of 1 - 10 with 10 being most, where do you think the greed meter is right now. How fearful should an investor be in todays environment.
By Investor, I mean someone thinking along your line of thought.

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Be fearful when others are greedy and be greedy when others are fearful.

Posted By: deveshkayal
Date Posted: 05/Jan/2008 at 1:01pm

So its like an investment for Rel Energy and i dont think REl Energy will be able to consolidate the POwer operations in its books

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REL will hold 45% post IPO so they cannot consolidate.

I remember Marc Faber quote "Initially, promoters have the vision, investors have the money. Later on, its the other way round" !!!

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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett

Posted By: catcall
Date Posted: 05/Jan/2008 at 2:26pm

Interesting points made here, Basantji, how about starting a poll on "How many TEDies plan to apply for Reliance Power IPO"?

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There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing!

Posted By: vincent
Date Posted: 05/Jan/2008 at 2:40pm

What kind of investor will apply for IPO http://valueresearchonline.com/story/storyview.asp?str=10839# -

Posted By: mukesh
Date Posted: 05/Jan/2008 at 2:59pm

Interesting points made here, Basantji, how about starting a poll on "How many TEDies plan to apply for Reliance Power IPO"?
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Not a bad idea. I am dying to vote

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Life gives answers in three ways-It says YES and gives waht u want. It says NO and gives u something better. It says WAIt and gives you the best

Posted By: smartcat
Date Posted: 05/Jan/2008 at 6:34pm

NTPC has 22,000 MW capacity and it generated a net profit of Rs. 8,000 crores in the last 4 quarters.

As a rough estimate, Reliance Power will generate a net profit of Rs. 4,000 crores for its 11,000 MW capacity in another 4 years. So at IPO price, Reliance Power is trading at 25 times FY12 earnings.

Of course, these are just basic estimates, to give everybody an idea about the valuations. While NTPC is one of the most efficient power producers, Reliance Power will enjoy higher per unit rates.

Posted By: catcall
Date Posted: 05/Jan/2008 at 8:27pm

Some Inputs on the IPO :

"The Bid must be for a minimum of 15 Equity Shares and in multiples of 15 Equity Share thereafter, so as to ensure that the total Bid Amount (including revision of Bids, if any) payable by the Bidder does not exceed Rs. 100,000, net of Retail Discount. At the Cut-off Price, the maximum number of Equity Shares that can be Bid for by Retail Individual Bidders is 225. (Investors may note that Total Bid amount is not just the amount payable at application but the entire amount payable for the bid including the amount payable by Due Date for Balance Amount Payable) In case of revision of Bids, the Retail Individual Bidders have to ensure that the Bid Amount does not exceed Rs. 100,000. In case the Bid Amount is over Rs. 100,000 due to revision of the Bid or revision of the Price Band or on exercise of option to bid at Cut-off Price, the Bid would be considered for allocation under the Non-Institutional Portion. The option to Bid at Cut-off Price is an option given only to the Retail Individual Bidders indicating their agreement to Bid and subscribe to Equity Shares at the final Issue Price as determined at the end of the Book Building Process."

There are two payment options for retailers
Payment Method-1
Amount Payable on Submission of Bid-cum-Application Form in case of Retail Individual Bidders and Non-Institutional Bidders, is Rs. 115.0 per Equity Share, such that it shall not be less than 25% of the Issue Price and Balance Amount Payable shall be paid by the Due Date for Balance Amount Payable. All Non Resident Bidders availing the option of Payment Method-1 are required to submit a copy of an approval from the RBI allowing them to subscribe to the partly-paid up Equity Shares. Under Payment Method – 1, out of the Amount
Payable on Submission of Bid-cum-Application Form, Rs. 2.5 is towards face value and Rs. 112.5 is towards premium.
Payment Method-2
Amount Payable on Submission of Bid-cum-Application Form in case of Retail Individual Bidders and Non-Institutional Bidders shall be 100% of Bid less the Retail Discount .

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There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing!

Posted By: shivkumar
Date Posted: 05/Jan/2008 at 10:04pm

let me get this clear:

As a retail investor, if I want to invest a maximum of Rs 1 lakh in the Reliance Power IPO, I will have to apply for 225 shares at cut-off price paying Rs 115 per share at the time of application. The total amount to be paid by me will be Rs 25,875/- which will include the discount.

Am I right? Or is there something I am missing?

Posted By: Mohan
Date Posted: 05/Jan/2008 at 10:44pm

Originally posted by smartcat

NTPC has 22,000 MW capacity and it generated a net profit of Rs. 8,000 crores in the last 4 quarters.

As a rough estimate, Reliance Power will generate a net profit of Rs. 4,000 crores for its 11,000 MW capacity in another 4 years. So at IPO price, Reliance Power is trading at 25 times FY12 earnings.

Of course, these are just basic estimates, to give everybody an idea about the valuations. While NTPC is one of the most efficient power producers, Reliance Power will enjoy higher per unit rates.

-------------------------------------------------------------------------------------------------

This is perfect example of irrational exuberance.
People are discounting 2012 earnings at 25 times just on the projections of a promoter. Perfect example of bigger fool theory at work.

The last time I saw people giving money to promoters for a pie in the sky was during the . com bubble.

Mr Market is really really in a good mood. Wink

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Be fearful when others are greedy and be greedy when others are fearful.

Posted By: smartcat
Date Posted: 05/Jan/2008 at 11:23pm

One of the companies I like - Mundra Port - is also trading at around 25 times FY12 earnings (but I'm still holding it). GMR Infra is fairly valued when you look at, who knows, FY15 earnings?

And anyway, if you find a particular stock very expensive on P/E basis, you will be able to justify the valuation using DCF methodology. Or some other abbreviation methodology.

This is a must-read http://www.moneycontrol.com/india/news/ipo-issues-open/first-project-to-go-onstream2009-anil-ambani/04/30/319866 - Anil Ambani interview for all Reliance Power investors. Highlights -

- the first project to go onstream in 2009 and cash flows will start post that.

- there was Roti, Kapda aur Makaan, now there is Roti, Kapda, Makaan and Mobile, and now there is going to be Power. I don’t think 1 billion people in India can do without power.

- a very small proportion of 28,000 mw is based on a cost plus regime.

- Investors usually know more than you and me combined, and the future potential of Reliance Energy is outstanding

As for me, I will probably not invest in Reliance Power - ever. But I will not discourage anybody from doing it!

Posted By: Mohan
Date Posted: 05/Jan/2008 at 11:35pm

Smartcat ji,

I think you are getting a hang of the Stocks editor style of neutral speaking.
I think by the time Mar 08 results are anounced, Market will be discounting FY 2015 earnings. Wink

My only hope is the actual earnings of the stocks that I own also get discounted at similar valuations so that I can buy that Island in the pacific and come back when Mr Market get pessimistic again. LOL

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Be fearful when others are greedy and be greedy when others are fearful.

Posted By: smartcat
Date Posted: 05/Jan/2008 at 11:45pm

hee hee.. I guess you can say I'm neutral on Reliance Power. Had it been HFCL's management coming out with a Rs. 11,000 crore HFCL Power IPO, I would have had a proper opinion about the stock.

The names 'Reliance' and 'Ambani' changes absolutely everything. My Mungeri friends (meaning, they act ONLY on tips) were today discussing about Reliance Power IPO and were despairing that they would not get any allotment because of oversubscription.

Posted By: tigershark
Date Posted: 05/Jan/2008 at 7:44am

there was a time when ENRON was the darling of the whole world

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understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things

Posted By: xbox
Date Posted: 05/Jan/2008 at 9:51am

A typical bull market must have IPO like Rel Power. A lesson which investor learns & re-learns.

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Don't bet on pig after all bull & bear in circle.

Posted By: vijayM
Date Posted: 06/Jan/2008 at 12:06pm

Dear Basantji,

I am unable to understand RELIANCE POWER IPO. Suggest me whether to apply for IPO or not.

Posted By: gcpradhan1
Date Posted: 06/Jan/2008 at 1:17pm

I was just going through some write ups on Buffet's Value investment and I found that he always emphasize that invest only on a running business. So I was wondering that whether Buffer ever made any investment in any IPOs in his long investment career??

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Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years - Buffet

Posted By: tigershark
Date Posted: 06/Jan/2008 at 2:15pm

whenever you are unable to understand------ best is to stay away from it.

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understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things

Posted By: basant
Date Posted: 06/Jan/2008 at 7:03pm

Originally posted by vijayM

Dear Basantji,

I am unable to understand RELIANCE POWER IPO. Suggest me whether to apply for IPO or not.

As a fundamental investor I would not touch it with a pole. Probably makes sense to look at NTPC instead but as an opportunistic investor one should apply for the IPO and then sell off on listing because the premium in the grey market is significant.

Posted By: deveshkayal
Date Posted: 06/Jan/2008 at 7:07pm

http://blog.investraction.com/2008/01/reliance-power-will-pay-80-cr-to.html - This is SHOCKING.

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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett

Posted By: India_Bull
Date Posted: 06/Jan/2008 at 9:30pm

The best strategy left for retail investors is to apply for the ipo and sell it for listing gains and then never talk about it Smile

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India_Bull forever Bull !
www.kapilcomedynights.com

Posted By: Mohan
Date Posted: 06/Jan/2008 at 10:56pm

Originally posted by smartcat

hee hee.. I guess you can say I'm neutral on Reliance Power. Had it been HFCL's management coming out with a Rs. 11,000 crore HFCL Power IPO, I would have had a proper opinion about the stock.

The names 'Reliance' and 'Ambani' changes absolutely everything. My Mungeri friends (meaning, they act ONLY on tips) were today discussing about Reliance Power IPO and were despairing that they would not get any allotment because of oversubscription.

Not as much as they will despair if the do get allotment.

Anyone remember Issue of Morgan Stanley growth fund ?

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Be fearful when others are greedy and be greedy when others are fearful.

Posted By: Mohan
Date Posted: 06/Jan/2008 at 11:03pm

Originally posted by deveshkayal

http://blog.investraction.com/2008/01/reliance-power-will-pay-80-cr-to.html -

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Be fearful when others are greedy and be greedy when others are fearful.

Posted By: India_Bull
Date Posted: 06/Jan/2008 at 11:11pm

What big brother MA has done with RPL is being done now by AA. But market gives special treatment to these 2 guys and why should we invest our energies in discussing about its valuations etc. RPL has become 4-5 bagger since its IPO , same will happen with Reliance Power. As an investor I know the risks associated if I invest in this stock but one should not ignore the fact that it is in the strong hands !!

So one has to decide whether one should take opportunity to make money in the short term (which is quite straightforward)or let it go by sticking to disciplined investment philosophy of PE/EPS etc ...

P.S- I dont have any interest in this stk and will not be interested in future as well, but I will apply in IPO , hopefully get some allotment and sell it at a profit to the people who believe in Reliance Power on the Listing day

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India_Bull forever Bull !
www.kapilcomedynights.com

Posted By: xbox
Date Posted: 06/Jan/2008 at 4:33am

I guess, we are at stage of bull market, where logic seems irrational. One need to decide ony one thing..be with it or not. This has happened to DLF then RPL and now to Rel Power.

People who put logic in DLF IPO are still putting more logic. RPL same story...So I feel..we are in sentimental bull market, where bull is not only running at BSE/NSE but also in everybody's mind. In 2003 nobody was accepting arrival of bull market and now nobody is accepting departure of bull market. Wealth creation lies somewhere between 2.

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Don't bet on pig after all bull & bear in circle.

Posted By: smartcat
Date Posted: 06/Jan/2008 at 11:49am

When it comes to scepticism, I think DLF will be another 'Reliance'.

Reliance Industries was 'overvalued' at Rs. 1200. Kotak Sec had put a Neutral/Sell call on this stock. Then it moved on to Rs. 2000, then Rs. 2500 and now is at Rs. 3000. DLF will be a similar story. Illogical valuations at Rs. 500, expensive at Rs. 1000. And it will remain outrageous at Rs. 1500, laughable at Rs. 2000 and so on.

DLF is a company that will generate a net profit of Rs. 12,000 crores in FY10. And you can count with your fingers on the number of companies in India that will have net revenues (leave alone profits) of Rs. 12000 crores.

Posted By: furkanalam
Date Posted: 07/Jan/2008 at 12:44pm

But DLF will not be able to genrate the same king of wealth for investors which Reliance has generated from the day it got listed.

So i dont think DLF can be another Reliance.The IPo market cap is too large to generate the same kind of returns for investors.

Posted By: investor
Date Posted: 07/Jan/2008 at 2:56pm

just to add to this:
Citigroup came out with a SELL call on Reliance Energy when it was around
800, saying fair value target is Rs. 550. LOL! I think the guy who came out with that report mustve been given a promotion by now!! Clap

Originally posted by smartcat

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The market is a place where people with money meet people with experience.
The people with experience get the money while people with money get experience!

Posted By: Vivek Sukhani
Date Posted: 11/Jan/2008 at 10:01am

When everything becomes so easy, then only sinister strikes. High fliers can fly even more high from here, but sooner or later , the market will take care of itself. Who knows, like H-10, K-10, this time it can be R-10???

Posted By: smartcat
Date Posted: 15/Jan/2008 at 4:00pm

Excerpts from Equitymaster.com Report on Reliance Power IPO -

RPL’s promoter, Reliance Energy’s proposal to set up the world’s largest gas based generation unit almost 4 years back but is 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 RPL? We are not saying that it is a bad project or that the management of RPL cannot make this work. But these are time-sensitive issues that can hurt the returns on any project. These are serious issues.

We have calculated the equity value of RPL using a 20-year discounted cash flow model (10 years of investment phase and 10 years of growth phase). We have assumed the company’s RoE to range between 14% and 19% (19% because we expect some part of the capacity to be available for merchant users where RoE can touch 30% levels) and a discount rate of 12%, which is in fact lesser than Infosys’ 14%. This way, the equity value of the company comes to Rs 338 per share. This is 25% lesser than Rs 450 at which the IPO has been priced at the higher end. Our cash flow estimates underpin a best-case scenario for the company as we have assumed that all planned projects will be commissioned on time, which in itself is questionable.

Finally, even if the price of RPL doubles on the listing day, the company’s market capitalisation will be higher than NTPC’s, which already operates over 28,000 MW of generation capacity and plans to take it to 51,000 MW by 2012.

Overall, considering the execution risks involved, expensive valuations and serious corporate governance issues, we would recommend our subscribers to ‘AVOID’ applying to the IPO

Posted By: India_Bull
Date Posted: 15/Jan/2008 at 4:05pm

I am planning to apply for this IPO depending on the subscription figures. The only problem is I will have to wake up early to catch the listing gains which everyone is talking , but will there be any takers or only just sellers .

BTW I am quite impressed by Jr Ambanis guesture of buying 3 crore shares at rate of 450 (this is the routine trick to impress buddhu shareholders like me !)

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India_Bull forever Bull !
www.kapilcomedynights.com

Posted By: India_Bull
Date Posted: 15/Jan/2008 at 4:07pm

Does anybody look at the recommendations of all these brokerage houses (Refer Equitymaster) ? I know lot of people who just apply in every IPO and sell on the listing day.

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India_Bull forever Bull !
www.kapilcomedynights.com

Posted By: Krishna
Date Posted: 15/Jan/2008 at 5:50pm

On the Reliance power hullabaloo..

Today all the Analysts on TV were blabbering that "This IPO was not driven by fundamentals" and played safe for the records if something has to go wrong after it gets listed.

On the listing day, imagine if its lists below the IPO price at the opening bell.. and keep sliding down... it will surely drag all the power sector scrips down with it and we may have a long recovery time. It could even drag all other younger Ambani stocks as well including the RelCom (RNRL may have to be renamed RIP come that day).

While I don't want to be a party spoiler, I am getting strange "vibrations" that this is going to be a one big time sucker!

Posted By: luke123
Date Posted: 15/Jan/2008 at 6:08pm

It was argued during Japanese bull run that by selling area around Impreial palace, you could have bought whole of California.
I think if this continues, we would be able to buy all of US listed shares by selling 10% of ADAG group companies.
I think Rel power is a bigger fraud than hfcl etc ever were.

Posted By: Vivek Sukhani
Date Posted: 15/Jan/2008 at 10:46pm

TED is indeed a very beautiful place, no doubt. i expected more flowery words for Reliance Power but I am getting opinion which is quite similar to my own. I used to consider myself as someone who used take the opposite view to most the members but as far this issue is concerned, I am totally insync with most of the members.

Its almost reaching the levels of hysteria. I am totally shocked how come people are so openly advertising about the premium on application( grey market). I was at one of the brokerage where I have a demat account, and the queue for submission for application was mind blowing and that too at 5 p.m.. It seemed more like people were rushing to give money to this IPO ratrher than the company asking for money. Appeared as if Reliance Power is doing a big favor to the retail guys by offering them a pie in the capital structure.......

However, everyone you meet on the street will tell you its an immediate sell on listing.......and when everyone tries to do the same thing, the outcome is quite different from the expectation. If this issue doesnt do well on listing, there can be many mini operators who will get toosed off, is all I can make out.

Posted By: tigershark
Date Posted: 15/Jan/2008 at 7:14am

humans are herd animals.humans fall prey to the power of an incentive.obiviously the pied piper has read atreatise called the PSYCOLOGY OF HUMAN MISJUDGEMENT

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understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things

Posted By: aloksahi1971
Date Posted: 15/Jan/2008 at 9:48am

Let me be a contrarian here.

The Late Dhirubhai started the mass equity cult and his initial investors can vouch for the fact thet they have not been swindeled.Some people compare this with hfcl and some may liken it to Mazda,but most people are missing the point that it is an IPO that does not say shares will be alloted to the heighest bidder ( belive me marothon Ambani would go further had this clause been there). He is offering a mega issue with good advertisment and the public is lapping it ,kindly notice the subscription in the first few minnutes is from the QIB .

Also take any stock that has abright future all face problems of scalability and execution risk.Case in point Pantaloon retail a darling here can any one justify the present price or guarentee the success of future capital.

The stock bazar in all its wisdom pays apremium for the future and has little patience for the past.If past was all that matered Infosys would not languish at 1501 in this most consistent and longest Bull market .

gentelmen grant the market that much and to each what he deserves

A investor may call himself that while his outlook mwill be of 15 days 9 listing gains then the correct term is speculator . In case that we have added IDFC to our list at TED then we at TED do believe in the secular growth story of India.There might not be a need for new shops( retail ventures) but believe me all of them require the power , Roads and other Infrastructure to enable them.

Posted By: basant
Date Posted: 16/Jan/2008 at 12:10pm

Power companies have restricted RoEs; are capex intensive and cannot grow at more then 20% CAGR at max for longer periods of time ALso NTPC is a better option.

Posted By: investor
Date Posted: 16/Jan/2008 at 1:20pm

Basant,

One general query. I saw news reports that the promoters(Anil) and Reliance Energy are also bidding/subscribing at upper end of 450 in this IPO.

I dont understand - i mean the promoters are the ones offering the IPO
by offloading some of their shares, isnt it? Then why subscribe again at 450??

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The market is a place where people with money meet people with experience.
The people with experience get the money while people with money get experience!

Posted By: basant
Date Posted: 16/Jan/2008 at 1:31pm

I think that the shares being offered are new shares not an offer for sale.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: aloksahi1971
Date Posted: 16/Jan/2008 at 4:09pm

Originally posted by basant

Power companies have restricted RoEs; are capex intensive and cannot grow at more then 20% CAGR at max for longer periods of time ALso NTPC is a better option.

Posted By: aloksahi1971
Date Posted: 16/Jan/2008 at 4:34pm

Then I guess Reliance Diversified Power Sector fund is the best bet by SIP!!!!!!!!!

Posted By: stockaddict
Date Posted: 16/Jan/2008 at 6:51pm

Originally posted by mukesh

The worst thing I feel is that almost all the newspaper, TV articles are presenting it as "Reliance Power, a subsidiary of Reliance Energy". whereas nowhere it is written or represented in DRHP or in media that it is a subsidiary. In DRHP they have mentioned it as a ADAG group company and co-promoted by Rel Energy. So its like an investment for Rel Energy and i dont think REl Energy will be able to consolidate the POwer operations in its books

I don't know why all authorities are turning blind eye to all these violations mentioned in this thread. Infact if it is REL who has bid for and won the contracts some other company must not be allowed to build those in the first place.

Posted By: deveshkayal
Date Posted: 16/Jan/2008 at 10:35pm

Originally posted by aloksahi1971

Let me be a contrarian here.

The Late Dhirubhai started the mass equity cult

One good thing is that many new investors are entering markets thanks to Reliance Power IPO. The same thing happened during Mukesh's RPL. Whether they will make money or not is hard to say !

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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett

Posted By: India_Bull
Date Posted: 17/Jan/2008 at 9:22pm

I changed my initial plan to subscribe to the Reliance Power IPO and used the opportunity to do some shopping in the correction.

If the issue gets subscribed so many times and everybody wants to sell immediately who will buy the share at 1000/800/ below listing price ??

I also considered the risk of my online trading site ICICIDIRECT getting down during this crucial hours !!

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India_Bull forever Bull !
www.kapilcomedynights.com

Posted By: tigershark
Date Posted: 17/Jan/2008 at 9:39pm

welcome back to TED!

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understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things

Posted By: India_Bull
Date Posted: 17/Jan/2008 at 9:50pm

Tigerjee, I am always with TED but kabhi kabhi bahar jake thoda bahut batting kar leta hun

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India_Bull forever Bull !
www.kapilcomedynights.com

Posted By: smartcat
Date Posted: 17/Jan/2008 at 10:03pm

If the issue gets subscribed so many times and everybody wants to sell immediately who will buy the share at 1000/800/ below listing price ??

Good question

Posted By: nitin_jagtap
Date Posted: 17/Jan/2008 at 10:41pm

Assuming that RPoL even doubles on listing, then its MCAP would still be higher than the MCAP of an existing established player like NTPC which has current capacity at approx 26000 MW and proposed addtion on another 25000 MW by 2012 and here we have a company which has planned capacity of 28000 MW spread over the next 3-6 years with its own set of execution risks. Two things can happen I think to take care of price/valuation adjustments.

1)MCAP of NTPC will rise and start discounting the additonal capacity that it proposes to add in the coming 3 years(just like we are discounting the RPL capacity for next 3-6 years). In which case NTPC should see a good upside from these levels.

2)Huge seeling will take place a few weeks post listing and we could see RPL come to lower levels where markets dont discount 2015 earnings.

I think the second case is most likely to happen. Considering the execution risks associated with this sector investors wouldnt want to discount beyond a couple of years.

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Warm REgards
Nitin Jagtap

Posted By: deveshkayal
Date Posted: 17/Jan/2008 at 11:09pm

Second case is a strong possibility.

I hear Software guys are very excited about Rel Power IPO. I guess brokerages should tie-up with Infy, TCS, Wipro and other IT companies and set up outlets on their campuses

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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett

Posted By: nitin_jagtap
Date Posted: 17/Jan/2008 at 11:18pm

Originally posted by deveshkayal

Second case is a strong possibility.

I hear Software guys are very excited about Rel Power IPO. I guess brokerages should tie-up with Infy, TCS, Wipro and other IT companies and set up outlets on their campuses

Very true devesh , I also work for a software company but not really a software guy, yes there is lot of excitement on this IPO , people who havent spoken anything on stocks and shares are now talking about this, a couple of guying were asking me if it was ok to open two demat accounts and apply through both accounts etc etc . Yes guys are pretty excited.

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Warm REgards
Nitin Jagtap

Posted By: Mohan
Date Posted: 22/Jan/2008 at 1:49am

Reliance Power On.
This one has drained everyones power. In one swoop.
Reminds me of UTI Mastergain and Morgan Stanley growth fund IPO times.
God help those who follow blindly like lemmings.

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Be fearful when others are greedy and be greedy when others are fearful.

Posted By: tigershark
Date Posted: 22/Jan/2008 at 6:07am

many poeple have found a new way of not applying for the issue even after applying for it by issuing stop payment notices to their respective bankers sighting insufficient funds in their accounts!

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understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things

Posted By: nitin_jagtap
Date Posted: 22/Jan/2008 at 7:48am

Some cant do it as the cheques have been cleared..they would all hope they dont get allotment.

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Warm REgards
Nitin Jagtap

Posted By: Mohan
Date Posted: 23/Jan/2008 at 8:45am

Allotment to sabhiko milenga. thoda, thoda...

Pehle to dono haath se pakadne bhaag rahe the.....
Abhi, Jaan chudane ko......

I read an article on rediff.com that reminds me of past ocassions when new investors enter the market and get slaughtered.

This is where a forum like TED becomes important for self - help.

----------------------------------------------------------------------------------------------------

"Shocking, very shocking. Nobody predicted such a severe slide," said a woebegone Suresh Mehta, a small investor, while talking about the crash of Sensex.

A middle-aged man with heart ailment, he said he "can't take it any more." "Whatever I earned in the last two years, I have lost in the last four days. I will sit at home for six months. How depressing to see that people were selling Reliance Petroleum [ http://money.rediff.com/money/jsp/quote_process.jsp?query=reliance%20petroleum%20ltd - ] even below Rs130. I had bought it at Rs 270. I can't do business like this."

Gujaratis, the community that boasts of the largest number of investors in the stock market, are witnessing extraordinary financial turmoil with many families going bankrupt overnight, literally.

In Ahmedabad and Mumbai, much family-talk veers around 'share prices.' A Gujarati broker, from Ghatkopar in suburban Mumbai, told rediff.com, "In the last two-three days, a record number of people have gone bankrupt. All the investors' portfolios stand to lose a minimum 30 per cent."

Investors are speechless to see that the stocks that were not even available for more than Rs 500 are today available for Rs 400 and yet there are few buyers.

A stock broker in South Mumbai said he invested about Rs 30 lakh (Rs 3 million) in Reliance Industries [ http://money.rediff.com/money/jsp/quote_process.jsp?query=reliance%20industries%20ltd - ] in the last three years. The last time, he bought RIL shares at the rate of Rs 3,200. "Right now, while talking to you, my shares are selling at Rs 2,327. I am doomed," he said, sitting in front of his trading terminal.

Another broker who is plays in the derivatives market said: "This is terrible (Bau kharab thayu). We were hopeful. I was far too positive. Actually, many of us discounted India's future in 2009 and 2010. But, today, we have learnt a lesson. No stock exchange or no market in India will remain unaffected by America."

He was angry and cursed two American financial majors who posted huge losses recently.

A top investor who is closely connected to one of the stock exchanges told rediff.com, "The Indian market was over-heated. The fundamentals didn't justify the share prices. Anything in extreme is bad. I am going to seek withdrawal of my money in Reliance Power."

"As it happens in all such crises, FIIs have sold their stocks and have pocketed profits, while Indian mutual funds and investors are left with cheap stock. The government and the controller of stock exchanges are helpless because it's a free market," he added.

Nimesh Kampani, chairman, JM Financial [ http://money.rediff.com/money/jsp/quote_process.jsp?query=jm%20financial%20ltd - ], said: "I don't think there is any problem with the fundamentals; this is a technical fault due to American market."

However, most investors agree that the market meltdown was not because of some scam or a policy blunder. It is believed that the American markets affected the Asian market and Indian markets were caught in this storm.

Some analysts said that the bourses suffered because of a cash crisis faced by some big fish in the market. To some extent the market was facing a shortage of funds following the Future Capital and the Reliance Power IPOs, said Mehta.

When some brokers who were facing a cash crisis and could not meet margin calls on time as the pressure from stock exchanges began to rise and the bourses started off-loading shares held as security. Margin calls come about when bourses instruct brokers to pay margins when there is a huge fall in stock prices.

A jeweler turned stock-investor says: "We are astounded. When we (the country) have 9% growth, when Indian companies are still doing good businesses and promise robust dividends, why should I not be hopeful? Why should the American sub-prime crisis make me so vulnerable? I really do not understand. I have no idea what lies in the future."

Mehta, meanwhile, said: "On second thoughts, I feel we panicked. Indeed, we crashed in panic."

Source : rediff.com

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Be fearful when others are greedy and be greedy when others are fearful.

Posted By: Buffet
Date Posted: 23/Jan/2008 at 11:01am

I dont understand the psychology behind these "so called investors" who buy stocks when prices are going up and selling when it falls. How they will ever make profit?

Posted By: gcpradhan1
Date Posted: 24/Jan/2008 at 12:06pm

What a good decision I took by not applying to Reliance Power. Since the beginning I was somehow skeptical about this IPO , but for a while was thinking that what's the problem in getting some quick bucks. But always TED and it's postings were pulling me back from applying to the IPO and the 4 days of offer just went while finializing ! And now this is the situation !! TED is really a good place for learning !!

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Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years - Buffet

Posted By: chic_1978
Date Posted: 24/Jan/2008 at 12:47pm

hey guys

check this, i got an email

All ur doubt will be cleared……..read below with patience.

=========================

Business: R POWER.

The company claims that it will be developing power generation projects of 28200 MW over the next decade.

According to the IPO RHP, some of the projects that it will be developing are:

Rosa-I (to be commissioned in March 2010) - 600 MW - Coal based.
Butibori (to be commissioned in June 2010) - 300 MW - Coal based.
Rosa-II (to be commissioned in September 2010) - 600 MW - Coal based.
Shahpur Gas (to be commissioned in March 2011) - 2800 MW - Gas based.
Shahpur Coal (to be commissioned in December 2011) - 1200 MW - Coal based.
Dadri (to be commissioned in March 2013) - 7480 MW - Gas based.
Krishnapatnam (to be commissioned in September 2013) - 4000 MW - Coal based.
Urthing Sobla (to be commissioned in March 2014) - 400 MW - Hydropower based.
Tato II (to be commissioned in March 2014) - 700 MW - Hydropower based.
MP Power (to be commissioned in July 2014) - 3960 MW - Coal based.
Siyom (to be commissioned in March 2015) - 1000 MW - Hydropower based.
Kalai II (to be commissioned in March 2016) - 1200 MW - Hydropower based.
Sasan (to be commissioned in April 2016) - 3960 MW - Coal based.

If

everything goes as planned, capacity of Reliance Power at end of each year till 2016 will be:

2008: 0 MW.
2009: 0 MW.
2010: 1500 MW.
2011: 5500 MW.
2012: 5500 MW.
2013: 16980 MW.
2014: 22040 MW.
2015: 23040 MW.
2016: 28200 MW.

=======================================

Other Similar Companies:

I can think of two companies in the power generation sector that Reliance Power can be compared with:

NTPC and Tata Power.

NTPC has current capacity of 28000 MW and has target to achieve 66000 MW by 2017. ( http://www.e-investing.in/showthread.php?t=1187 - See this thread on NTPC ).

Tata Power has current capacity of 2300 MW.
It will be adding 10000 MW of capacity more by 2012. Thus, it will have a capacity of around 12300 MW by 2012 end.
The additions will all be coal based.
-Mundra Ultra Mega Power Project -4000 MW.
-Power plants in Maharastra - 3000 MW.
-Captive power plants for Tata Steel - 2000 MW
-Maithon Power Plant at Jharkhand - 1000 MW.

Tata Power also has other smaller business and also wants to http://www.thehindubusinessline.com/2007/12/20/stories/2007122052800100.htm - enter shipping and logistics . Besides that Tata Power has investments valued at Rs 400+ per share of Tata Power. This works out to be Rs 10000 crore..
Around 2012 - 2013, both Tata Power is expected to have similar capacity as Reliance Power.

The interesting thing is at current price of Rs 1457, Tata Power is valued at just Rs 30000 crore. Remove Rs 10000 crore of investments and you can have it only for Rs 20000 crore.

At Rs 900, Reliance Power will have market value of 200000 crores....6.67 times that of Tata Power. .

========================================

Financials:

With 2300 MW capacity, Tata Power made standalone profit of Rs 700 crore in FY 2007.

With 28000 MW capacity, NTPC made standalone profit of Rs 6900 crore in FY 2007.

Lets assume Reliance Power turns out to be much more efficient than these two companies. Add to that increased power rates.

With 28200 capacity, assume Reliance Power makes Rs 15000 crore of net profit in 2016-2017. Power companies are considered as utilities and worldwide trade at 10-15 times their earnings.

Lets assume 15 times ratio for Reliance Power in 2016.

What will be its market value?

15000 X 15 = Rs 225000 crore or Rs 995 per share.

This is an optimistic view:
-there will be no further equity dilution till 2016.
-assuming nearly twice as much efficiency as NTPC.
-that all projects will be completed before 2016 end.
-the company would have paid back all debt by then and interest costs would be in similar range as NTPC.

(NTPC already has established 28000 MW capacity and comparatively much lesser interest costs. (NTPC's P&L account states Rs 1800 interest cost for FY 2007).

So what about the debt?

The RHP mentions estimated cost of six projects Rosa I, Rosa II, Butibori, Sasan, Shahpur Coal, Urthing Sobla as Rs 30000 crore+.

Analysts estimate that http://www.moneycontrol.com/india/news/ipoupcomingissues/anilambanireliancepower/reliancepowertoraisers76kcrdebttofund12projects/market/stocks/article/306769 - Reliance Power will need Rs 70000 crore of debt to finance its projects which are estimated to cost 100000 crore+.

Rs 70000 crore of debt is not going to come at 2% interest rate. Even a 6% interest would mean an annual interest cost of Rs 4200 crore. Only in 2013, the company's capacity will cross 10000 MW. Thus, I do not expect any major debt repayment before 2014. If things don't go as planned, the debt burden will make a mockery of the balance sheet.

With Rs 12000 crore raised in equity and Rs 70000 crore of debt, these whole business will become a high-risk venture.

Any unforeseen delay/derailment of plans may create major problems for this company.

========================================

Reliance Power - The Overlooked Fact:

Is Reliance Power just "Reliance Power"?

No.

It is actually "Reliance Power Limited" - a limited company.

So what does this mean for Reliance Power Limited?

It means if in the rare case, the calculations of the management go wrong and the company somehow goes to insolvency, none of the shareholders will lose anything expect the value of the shares.

If you are a share holder of Reliance Power and it goes into insolvency (unable to pay back debts), what do you stand to lose?

Rs 430 per share.

Lot of money....right?

What does Anil Ambani's AAA Project or REL lose?

Both of them had got their 45% (post-IPO) stake for Rs 1000 crore each. Plus they will each subscribe to 1.6 crore shares each at Rs 450 in the IPO......which works out to be Rs 720 crore.

Thus, AAA Project will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore and REL will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore.

Little less than Rs 17 per share.

This is what both the promoters are risking in this project....Rs 17 per share ; while investors will be risking Rs 450 per share .

This is exactly the reason why Reliance Power was created.

First, by contributing just Rs 1720 crore each to Reliance Power, the promoters have shifted all risk to investors.

Second, by getting 45% stake (in REL's projects) to AAA Project for a mere Rs 1000 crore, AAA Projects (and Anil Ambani) have created wealth out of thin air.

Anil Ambani's Rs 1000 crore investment will be worth Rs 100000 crore when Reliance Power lists at Rs 900.

If the gamble works, the promoters (holding 90% stake in Reliance Power) will be worth billions of dollars.

If the gamble doesn't work, the promoters will lose Rs 1720 crore each and investors will lose Rs 10000+ crore which they will be paying for a mere 10% stake in Reliance Power.

What a way to create wealth...!!!....I don't have words to describe the brilliance of Anil Ambani's plans... .

========================================

First, other companies are much cheaper.

Why should I keep a company valued at Rs 200000 crore -

when another company (with similar capacity by 2013) is available at Rs 30000 crore with much smaller debt burden and Rs 10000 crore worth of investments............referring to Tata Power.

If Reliance Power (at Rs 900) is available for Rs 200000 crore, why not buy NTPC for a similar price ......Rs 225000 crore. NTPC plans to have a capacity of 66000 MW in 2017, while Reliance Power will have 28200 MW capacity in 2016.

Second, the risk is higher than other existing companies.

With marginally cash flows for next 5 years and Rs 70000+ crore of debt, the risk for Reliance Power is high. Tata Power and NTPC have existing cash flows to handle expansions.....Reliance Power does not.

Third and the biggest factor is....the valuation of the company doesn't make much sense.

Why should Reliance Power be valued at Rs 200000 crore, when in highly optimistic scenario, it will not make more than Rs 15000 crore of profit in 2016? Even if it touches that figure of Rs 15000 crore, its market value in 2016 will not be much more than 225000-300000 crore. (if given a 15-20 times multiple).

A fixed deposit will make more money than that in 8 years.....and that too without any risk.

Also, I got the optimistic Rs 15000 crore figure by assuming two times margins as NTPC.

The fact is..... at least till 2014, Reliance Power will still be carrying most of its Rs 70000 crore debt and its interest costs will squeeze margins to a large extent.

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happy & wise investing

Posted By: gcpradhan1
Date Posted: 24/Jan/2008 at 5:49pm

Reliance Power seeks SEBI nod for early allotment to QIBs

At a time when liquidity is of primary importance Reliance Power has proposed to make available $10 billion to institutional investors for the secondary market. According to a source, the company has written a letter to the Securities and Exchange Board of India (SEBI) on Wednesday to allow them to make an early allotment of equity shares to qualified institutional buyers (QIBs). If allowed, the move will see refunds of over Rs 40,000 crore making its way to other investment avenues.

Please read the full news here :
http://economictimes.indiatimes.com/Rel_Power_seeks_SEBI_nod_for_QIB_allotment/articleshow/2726184.cms - http://economictimes.indiatimes.com/Rel_Power_seeks_SEBI_nod_for_QIB_allotment/articleshow/2726184.cms

It seems MA is really a worried person now a days !!! Wanted to fool investor, but Mr. Market fool him..

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Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years - Buffet

Posted By: furkanalam
Date Posted: 24/Jan/2008 at 6:17pm

Nice post chic....

Posted By: Mohan
Date Posted: 24/Jan/2008 at 10:50pm

Isko kehte hai " hatheli me chaand dikhana "

Logo ki " Khayali Pulao Khaneki aadat nahi jaayengi "

Typical result of greed.

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Be fearful when others are greedy and be greedy when others are fearful.

Posted By: basant
Date Posted: 10/Feb/2008 at 9:33am

R Power lists below IPO price. It is a watershed day for fundamental investing in India. We should be thankful that with this temporary (overall market) loss investors will be in for good times ahead at least when it comes to selling (cock and) bull stories.

I hope Chota Ambani has learnt his lessons well if not he is in for even tougher times ahead!

Posted By: nitin_jagtap
Date Posted: 10/Feb/2008 at 9:42am

True basantji ....chote better learn this fast ..no one bigger than the market. In the short term only the BRLMs have made their money . What really surprised me was Vallabh Bhansali defending the pricing of this issue.Didnt expect this from ENAM.

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Warm REgards
Nitin Jagtap

Posted By: xbox
Date Posted: 10/Feb/2008 at 9:42am

Originally posted by basant

I hope Chota Ambani has learnt his lessons well if not he is in for even tougher times ahead!

Market is known to forgive sins of heros, after all they compliment each other.

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Don't bet on pig after all bull & bear in circle.

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