Subscribe to Rel Power for listing gains: India Cap Mkts
ndia Capital Markets has come out with research report on Reliance Power (REPL) IPO. The firm has recommended investors to subscribe with a view to book profits on listing.
Reliance Power is planning to raise around Rs 10,530-11,700 crore from its initial public offering (IPO) of 26 crore equity shares with a face value of Rs 10, for cash, a price decided through 100% book building process. The price band has been fixed at Rs 405-450 per share.
India Capital Markets report on Reliance Power IPO
Reliance Power is a part of the Reliance ADA group and was established to develop, construct and operate power projects domestically and internationally. The electricity demand and supply imbalance in India presents significant opportunities in the power generation sector. The Government of India’s vision of Power for all by 2012 will require aggressive growth and increased private sector participation.
To capitalize on this opportunity, the company is developing 13 medium and large sized power projects with a combined planned installed capacity of 28200 MW, one of the largest portfolios of power generation assets under development in India.
Investment Rationale
Largest Power generation projects under development in India
REPL is developing 13 projects having a planned installed capacity of 28200 MW, comprising one of the largest power generation portfolios under development in India. Sasan, a 3960 MW coal-fired UMPP to be located in Madhya Pradesh, is expected to be the largest coal fired power project at a single location in India.
Dadri a 7,480 MW gas-fired project to be located in Uttar Pradesh is expected to be the largest gas-fired power project at a single location in the world. Krishnapatnam, a 4,000 MW coal-fired project, is the third and the most recently awarded UMPP.
Diverse portfolio of Power projects
REPL is developing projects that are diverse in geographic location, fuel type, fuel source and off-take. The identified project sites are located in western India, northern India, northeastern India and southern India. They include 7 coal-fired projects (14620MW), 2 gas fired projects (10280MW) and 4 hydroelectric projects (3300MW).
Strategically located Power Projects
The company has located the majority of projects in the northern, western and northeastern regions of India to cater to the significant unmet demand in the northern and western regions of India. According to the CEA, the peak deficit was 9,639 MW in western India and 2,813 MW in northern India for the period between April and September 2007. As the peak demand is expected to go up to 152,746 MW and 218,209 MW by the fiscal years ending March 31, 2012 and March 31, 2017, respectively, REPL believes that its projects are well positioned to serve expected demand.
Concerns
Depreciation of rupee against foreign currencies may have an adverse affect on the results of operations
While a substantial portion of revenue will be denominated in Rupees, REPL expects to incur significant indebtedness denominated in foreign currencies to finance the development of power projects. Any depreciation in rupee against these currencies will increase the rupee cost to the company of servicing and repaying foreign currency borrowings and costs.
REPL faces significant competition as a result of deregulation in the Indian power sector
The Electricity Act of 2003 removed certain licensing requirements for thermal power generation companies, provided for open access to transmission and distribution networks and also facilitated additional capacity generation through captive power plants. The company may face significant competition with other Indian companies seeking to expand their power generation business as well as international power companies while negotiating or bidding for power projects. The company may also compete with central and state power utilities.
Implementation delays
Being long gestation projects the company may face implementation delays. The failure to complete project development within stipulated time period could render certain benefits granted by the government unavailable and can affect REPL’s earnings.
Outlook & valuation
REPL plans to capitalize on experience and expertise of REL in the development and operation of power projects and distribution, transmission and trading of power in India. REPL’s 13 projects have a planned capacity of 28200 MW, which is the largest power generation portfolio under development in India. The company however has not yet commenced production on most its projects and there could be some delays in implementations which is one of the biggest concern.
Considering the fact that Reliance ADA is a diversified business group with a strong reputation in India and with the current hype in the Indian power sector we expect the stock to do well on listing. We recommend investors to Subscribe with a view to book profits on listing.