Reliance Power IPO set to mop up record sum

Retail investors can apply at Rs155 a share and pay the rest on allotment

MUMBAI: The largest ever initial public offering (IPO) of shares in India, from Anil Dhirubhai Ambani Group-promoted Reliance Power, hits the market on Tuesday.

If the issue gets subscribed at Rs405 a share, the lower end of the price band, the company will raise Rs9,234 crore. At the higher end of the band, at Rs450 a share, Rs10,260 crore will get raised. Either way, it will eclipse the June 2007 share offering from Delhi-based property developer DLF, which amassed Rs9,188 crore, as the largest IPO.

The funds will be used to part-finance six of the 13 power generation projects that the company has undertaken. It hopes to have 28,200 mega watt of installed capacity by 2014.

“The issue appears to be highly overvalued considering the long gestation periods of the projects. However, we believe that the stock could list at a premium on account of low liquidity and expected large oversubscription, and hence advise clients to subscribe to the issue purely to enjoy listing gains,” says a pre-IPO note from Emkay Share and Stock Brokers.

That retail investors can apply for the issue at Rs115 a share (one-fourth the price at the upper end of the price band) and then pay the remainder once allotment is made is set to spur a lot of interest. “It means the issue will be subscribed four times more than it would have been otherwise from the retail side,” said Vinod Kumar Sharma, director and head of research at Anagram Securities.

He expects the stock to list Rs300 higher than the issue price, but like Emkay, advises investors to play for listing gains only, and then run.

“We are not comfortable with high valuation commanding companies in which projects are yet to come on stream,” he said. “There are other power companies with commissioned projects, that are available much cheaper,” he said.

Gaurang Shah, chief manager at Geojit Financial Services also expects a big listing. “A 40% listing gain (translating to around Rs630 a share) on a very conservative basis is what I forecast,” he said.

He admits that the price looks high but says that since the power sector is the flavour of the season, the issue should sail through.

“The only two negatives I see are the execution risks associated with the project and policy decisions on the power sector that come out from time to time which can go against the company,” he said.

Many are betting big on the IPO for the sheer force behind the Ambani family name. It was Anil’s father Dhirubhai who is credited with having started the equity cult in India when he listed Reliance Textile Industries in 1977. Today, the shares of the company in its new avatar as Reliance Industries, although owned by elder brother Mukesh, quotes at Rs3,128.15.

It’s with such a firm family track record that Ambani junior is playing his cards.