January 25th, 2008 
krishna Reliance Power’s IPO, the largest so far in the Indian markets, opened for subscription from 15-Jan-08 to 18-Jan- 08. The company aims to raise up to Rs 11,700 crore. Under the IPO, 26 crore shares in a price band of Rs 405-450 is on offer to the public. Thirty per cent of the shares on offer have been reserved for retail investors. Investors can apply for lot sizes in the multiples of 15 shares. Investors in the retail category can choose from two payment options. Under the part payment option, retail investors can pay at the rate of Rs 115 per share and apply for up to 225 shares. Alternatively, they may invest at cut -off by paying the full amount for up to 225 shares.
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It is still not clear if investors’ option for the part payment option will be able to benefit from listing gains. According to analysts, investors making part payment may be allotted shares only if the retail portion of the issue is subscribed between four to six times at cut-off price. If the retail portion barely scrapes through, then investors will have to pay the entire amount before the shares are credited to their demat accounts. The process will then take up to 40 days so investors will not be able to sell on listing day.
The grey market expects listing at around Rs 900 per share. Analysts have advised long-term investors not to apply for this IPO since the company is expected to show earnings only from 2010.
Retail as well institutional investor interest is very high for the Rs 10,260 crore Initial Public Offering (IPO) of Reliance Power, which opens for subscription on 15 January 2008.
“I am applying for the Reliance Power IPO to the fullest limit allowed to retail investors. It is a Reliance company and a sure bet,” said an investor who wished not to be named. The brand Reliance and Ambani is what is creating the frenzy and investors are not keen on looking at the fundamentals or finer details of the issue.
The grey market premium for the IPO is at Rs 450-500 and market men hope for a listing price of Rs 950-1,000. Brokerages are flooded with investor queries on loan facilities for subscribing to the biggest IPO in the country, and at the retail level there is a marketing drive that has not been witnessed in the recent past.
Market experts say the issue is overpriced, as Reliance Power will start earning only after its first generation unit -phase I of the 600 MW Rosa Power project in Uttar Pradesh – goes on stream by December 2009. Until then, at zero earnings, the stock, no matter at what price, will be trading at an effective price-to-earnings multiple (P/E) of infinity.
National Thermal Power Corporation is the least valued stock in the power pack at a P/E of 30.94. Reliance Energy is trading at a PE of 65 and Tata Power at 60.26. However; the Reliance Power IPO may be a story similar to that of Reliance Petroleum, which hovered at low levels after issue and started rallying recently. Though the issue is overpriced, it still may well be of the kind to sell on listing day to exit with substantial gains.
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