RELIANCE POWER IPO: STOCK FOR SMALL INVESTORS

The plan to list Reliance Power Limited was a welcome step from R-ADA group and is eagerly anticipated by small investors. The red herring prospectus for the issue was submitted to SEBI on October 3. The company is supposed to sell 11.5% of post paid up capital of the company, which media reports have said may raise $2.8 billion. Probably it will be India’s biggest IPO. Reliance Power also has in interests in infrastructure, telecoms and financial sector. ADAG holds the company through various group companies including Reliance Energy which holds around 50% of the stake.

According to media report around 30% of the shares will be for retail clients, 10% will be for HNIs and rest 60% will be for Institutional Investors. There are reports that the face value of the stock may be of RS 10/- instead of Rs 2/- as initially proposed. link. The issue will definitely require the support from FIIs and DIIs. Some sources informs that the issue may be delayed by some more time. Link.

No doubt it will be a bonanza for retail investors as power sector is the dominant sector for immediate future.

There is some good news for the investors before the issue. Reliance Power has bagged the Krishnapatnam Ultra Mega Power Project. It has already bagged the Sasan and Mundra mega power projects. All the development is likely to make the issue more attractive.

www.bsensedaily.com has furnished a list of projects currently handled by Reliance Power Limited as follows:

• Rosa Phase I, a 600 MW coal-fired project in Uttar Pradesh scheduled to be commissioned in March 2010.
• Rosa Phase II, a 600 MW expansion of Rosa Phase I which is scheduled to be commissioned in September 2010.
• Butibori, a 300 MW coal-fired project scheduled to be commissioned in June 2010.
• Sasan 3,960MW UMPPs promoted and awarded by the Government of India is expected to be the largest pithead coal-fired power project at a single location in India,scheduled to be commissioned by April 2016.
• Shahapur, a 4,000 MW coal-fired(1,200 MW) and combined cycle gas-fired (2,800 MW) project in Shahapur, scheduled to be commissioned in March 2011.
• Urthing Sobla (400 MW), a run-of-the-river hydroelectric project, located on the Daulinganga River in Uttarakhand scheduled to be commissioned in March 2014.
Five other projects—the gas-fired Dadri project (7,480 MW), the coal-fired MP Power project (3,960 MW) and three run-of-the-river hydroelectric projects, Siyom (1,000 MW), Tato II (700 MW) and Kalai II (1,200 MW).

There are some controversies too. ADAG has alleged some market forces working against the mega issue and trying to thwart it. Link. REL investors are unhappy to find that no approval was sought from them for listing the issue as it has direct bearing on the income of REL. and so on. There is already premium on this issue in the grey market and some of the market operators are making losses, as the issue is delayed for various reasons but the grey market premium on the issue is increasing steadily. Link: Reliance Power IPO clouds grey market.

There is already a blog on this mega issue. But the buzz in the overall Indian finance Blogosphere about the mega issue of Reliance Power IPO is mixed and evoking different emotions. Most of the Indian Stock Market Blogs are maintaining a very neutral stand and just passing on the information on the issue only.

Yours truly is very bullish in the growing story of Power stocks and believes that this issue is genuinely going to lift our stock market to a few notches higher.

CAPITAL GOODS STOCKS: FULL OF PROMISES

One should have presence in stock market in a sector which is relevant and have the potential to grow aggressively in short and medium term. And icing on the cake will be if one can pick up stocks in that sector at an attractive value. The above is the most ideal situation for any investor.

The renewed emphasis on Indian infrastructure sector is noticeable in recent past, and the capital goods stocks are reaping maximum benefits. They have ever increasing order books as the result of overall well being of Indian economy. The strong quarterly numbers in this sector confirms that the general concern of this sector like execution risk, momentum of order book and funding will not be problem in foreseeable distance. We should not forget, we are targeting 9% GDP growth in the 11th Five Year Plan.

I have identified some stocks which in all probability will be the future leaders in capital good sector. The large caps like L&T, BHEL, Suzlon Energy are already been in the radar of most of the small investors.

The strong momentum of some visible mid caps is noticeable; Thermax, Punj Llyod, Cummins, Siemens, Alfa Laval etc are holding good promises.

Now for small investors let’s go back to first para of this blog: to pick up the selected capital good stocks at attractive value. Stock market is full of surprises, nobody is sure when the stocks will be presented to us on a platter to our likings. But can we pick them at that opportunate moment? I am not sure, downward price of any stock makes us doubting Thomas, and we miss the opportunities.

Let’s be prepared and not miss any opportunity. These stocks will make our portfolio richer.

POWER STOCKS: IDENTIFY THE WINNERS-II

There is a lot of hullabaloo about the valuation of power stocks in the Indian stock market. Being bullish (earlier post: here and here) in this sector made me to have a rethink. The power stocks passed a long period of sluggishness due to some archaic laws . There is a severe shortage of power in our country and with very conservative estimate the supply shortage to demand will remain until for at least another decade. Now government is putting emphasis on infrastructure and power. Logically power stocks are best bet to invest with a long term horizon.

The valuation of REL, NTPC, Power Grid, Tata Power are in the forties of their annualized sustainable earnings. Neyveli Lignite Corporation, Gujarat Industries Power Company, Lanco Infratech and GVK Power have higher valuations than a year ago. Power equipment manufacturers like BHEL, Cummins, Crompton Greaves are also have high valuation.

It seems that the power sector is in a different platform right now, which reminds me of the IT stocks a year back. The IT stocks justified their high PE with sustained earnings for a long period. Can the power stocks repeat the feat of IT stocks? Debatable! May be power stocks may correct to some extend in the days to come and to me that will be an opportunity to pick up some value stocks for some long term investment.

Some really attractive IPOs are coming in this sector. Reliance Power, NHPC and REC will present small investors a chance to pick them up at good valuations.

What about the recent listing Surjyachakra Power and IndoWind Energy? Surjyachakra Power has a tie up with a Chinese company to for a coal-fired project in Orissa. They are also good pick for small investors as they still have to find their groove in Market.

One should not worry for the power stocks in their portfolios as they are long term winner and outperformers in Indian Stock Market.