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Wednesday, January 09, 2008

Reliance Power - Why is TV18 against it ?


Reliance Power: Is The Management Being Vilified For Substantive Reasons?

By Mid January 2008, India's largest IPO till date, the Rs 11500 crore Reliance Power IPO would have opened, and though CNBC and its leadership have been at the forefront of a campaign to avoid the issue, a closer look might suggest beneficiaries lie elsewhere and so the Issue must be successful.

-7000 MW of Power Generating Capacity proposed by Reliance Power will cost Rs 28,000 to Rs 30,000 crore ande become available by 2011.

-Overall Capacity of Reliance Power Will rise to 26000 MW by 2016, and cost Rs 104,000 crore.

-Beyond the Equity element of Rs 11500 crore, Banks and FIs will fund the balance Rs 90,000 crore as Debt. If CNBC is to be believed, then all Banks should have substantial NPAs and possibly close by 2016. So why should we not pull out all our money and stuff under the mattress.

-In a Power Gen project, 95 per cent of the Investment goes into land rest into Equipment. Here we are talking of a collective order book for Siemens, Alstom, Bhel and ABB of the magnitude of Rs 95000 crore which 4-5 times the Revenues these concerns generate in a year.

-This will need Building up of New Power Plants by Bhel, Siemens, Alstom and ABB unless the Equipment gets imported.

-The Power Grid and Transmission Capacity will have to be raised to enable this additional power generated to move. This will imply higher demand for Crompton Greaves, Areva, Bharat Bijlee, Jyoti Structures, Sujana Tower and RPG Transmission.

-There will be additional requirement of Steel Wires, Steel Structurals and fresh production of Steel making capacities to sustain this growth in Demand from the Power-Downstream segements. So Iron Ore Mines and Mining Equipment manufacturers like Revathi, Atlas Copco, TIL and Ingersoll Rand will be favoured.

-Then there will be the producers of electricals Havells, Genus, LNT, Indo Asian Fuse Gear, which will need colossal amounts of circuit breakers, switchgears and modern tripping systems.

-Finally, we will need more Coal mines either in India or Overseas to sustain these Thermal Plants which are proposed to be set up by Reliance Power, and there might be some based upon Gas and Nuclear Fuel, for which separate fuel requirements will have to be met.

-At roughly $ 30 bn of direct investments Reliance Power would have cost about 3 per cent of India's GDP by 2016 and will add about roughly $ 40 bn or 4 per cent of India's additional GDP by 2016.

-Overall success of Reliance Power will imply prosperity for millions of people in the country who have waited for 6 decades to see Light and Employment.

-A success of Reliance Power will also mean a success of the GOI policy to promoter Ultra Mega Power Plants with a single location capacity of 4000 MW and costing anywhere between Rs 16000 to Rs 20000 crore and prime examples are Sasan, Mundhra and Krishnapatnam bagged by Tata Power and Reliance Power.

-Most of these UMPPs will be set up as Special Purpose Vehicles and listed in Overseas nations, minimising risk for local investor and broadbasing investor participation. If SPVs were not there none of the mammoth Real Estate projects being set up by DLF or Unitech go off the plinth, but they are going ahead.

-Reliance Power too is not headed by fools, and so most of their expansions will come under SPVs minimising risk.

-More importantly Promoters and QIP are taking placements at the same price as general investors, so where is the self aggrandisement of Mr. Anil Ambani?

-Even as I write there is a Power cut in Delhi and it has lasted 2 hours a day for most of this Winter and for the past 44 winters I have seen the scenario has been ranging from grim to pitiful.

-I remember standing in Queues to pay power bills in the past, to crooked GOI servants, and these people now work under Reliance Energy and Tata Power Distcoms in Delhi without creating problems for civillians.

-The GOI intends to put up 8 such UMPPs costing Rs 160,000 crore over the next decade. Will all these projects too would be unviable as per CNBC or do we see a massive transformation like China, which set up one Thermal plant every week for the last 5 years?

-Stock valuations are a trade-off between High Initial Equity sold at par or Low Equity sold at premium, to generate better earnings per share for the Investors. It can be argued whether the pricing of Reliance Power is aggressive, to caste motives on the management is incorrect.

-Each and Every Investor has the right to or not to participate in the Reliance Power issue, and thus far no one has put a gun to anyone's temple for putting a application in the IPO. This is a conscious choice each investor can make without recourse to the gigolos at CNBC and the sluts they display daily.

-To the best of my knowledge no journalist ensconced in cushy chairs and luxury clothes have ever had a hard days work setting up a power plant, pulling transmission wires over deserts and hills or dug up mines in sub human conditions. If they had done anything of this magnitude they would not have taken sides on the Reliance Power issue.

-If the guys in the media were to be believed the Mundhra Port would have never happened, neither would have Pipavav and Natural Gas would not have been found by Reliance but by Ongc. That the private sector is thriving and contributing needs to be appreciated and backed up by investors.

-Those who cannot take risks or will not hold out for 10 years have better options in the Power, atleast 20 of them and they would do well to take their money elsewhere rather than be a part of the Valuation, PE, market cap to Sales and Book Value story being popularised by Reliance Power.

-7 years ago TV18 had come on-stage with a bang listed at Rs 1600 a share, today the CNBC guys are rich even after excercising their stock options at ludicrous prices, I think "history got repeated" but those guys instead of repenting are condemning others.

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