Rel Power IPO - Invest

Aiming big…Mr Anil Ambani, Chairman.

Reliance Power’s IPO could be attractive for short-term investors seeking to flip the stock on listing and book returns, but not for long-term investors with a conservative risk profile. Given the tremendous interest generated in the market by this IPO, the stock could deliver handsome returns on listing or in the immediate period following that.

Long-term investors may, however, want to note that Reliance Power (RPL) is seeking to raise funds on promise alone; critical parts of most of the planned projects are yet to be tied up. The first generation capacity is expected to come on line two years from now in March 2010 and, again, that will be just 10 per cent of the total capacity that the company is planning to part-fund from this IPO proceeds.

Cash flows and business profits may be possible only from FY 2010-11 and, again, it will be but a trickle to start with. The real money will start flowing only when RPL brings on line its first ultra mega project at Sasan. As per the agreement with the government, the first unit of the Sasan project will be commissioned in mid-2013; it will not be before April 2016 that the entire 3,960 MW will be on stream.

Generating promise

RPL plans to use the IPO proceeds to part-fund capacity adding up to about 7,000 MW through projects of different subsidiaries. All of these, save one (400 MW hydro), are coal-based stations including the 3,960 MW Sasan ultra mega project.

There are a further seven projects adding up to around 21,000 MW in the planning stage, including the 4,000 MW Krishnapatnam ultra mega project. This list consists of a mix of fuels such as gas and hydro. If all these projects are commissioned on schedule, RPL will be a 28,000 MW company in the next decade, about the same size of NTPC now. Of course, over the same period, the latter will have crossed the 50,000 MW mark assuming that its projects stay the course.