Indiabulls Power IPO Review

Indiabulls power (IPL) has come out with its initial public offering (IPO), with an issue of 39.07 crore equity shares, which includes 5.09 crore
of green shoes option. At the offer price of Rs 40-45 per share with face value of Rs 10 each, the issue would mop up Rs 1,560-1 ,760 crore, and would represent 19% of post dilution equity capital. The proceeds would go for power projects at Amravati, Phase I and at Nashik.

The two projects would require a total of Rs 3,200 crore of equity funding, and the company would need to put in additional funds in these projects. Considering the status of its projects, projected timelines and funding plans, the stock does not look attractive enough. Investors may wait for the listing, and can consider the stock in the secondary market.

COMPANY’S BUSINESS

Amravati, Phase I project has two units with a total capacity of 1,320 MW, and would require an investment of Rs 6,900 crore, of which only Rs 156 crore has been spent so far as per the prospectus. The company plans to fund the project with Rs 5,166 crore of debt, which is 75% of total cost. While it has received final sanction from the lenders, it is still to enter into formal financing agreement. The company has received assurance for fuel linkage and has also awarded EPC contract for the project.

The expected commissioning of the two units in this phase is June ’12 and Sept ’12. Nashik project has 7 units with total capacity of 1,335 MW, requiring an investment of Rs 6,048 crore. While the company has received the fuel linkage for this project, it has not yet awarded the EPC contract for this project.

Company has another project at Bhaiyathan, with a capacity of 1,320 MW where it has awarded the EPC contract. The company has received captive coal blocks for this project, which is estimated to have reserve of 350 mn tonnes, enough for the life of this project. The estimated investment for the project is Rs 6,796 crore and expects to commission the two units in Dec’ 12 and March’ 13. However, progress related to mining of coal from the block is still awaited.

Apart from these projects, it is developing Amravati Phase II, another project in Chhattisgarh, both having a capacity of 1,320 mw, which are at initial stage, and would require about Rs 5,600 crore each. It also plans to develop 4 hydel units in Arunachal Pradesh totaling 167 mw.


VALUATION AND OUTLOOK:

Since the company is still to begin its operations, it has no income from operations and earned Rs 141 crore as other income in FY09. As such, it cannot be evaluated based on price-earnings model. Further, the lackluster response of the market , after the listing, to the previous two IPOs from power generation companies in the last few months, means the market is not ready to buy the power generation stocks based on the future expectation.


The uncertainty is higher in this case as the first commissioning is almost 3 years away. Further, the progress in each project is still limited, which may get further delayed, as there is no formal agreement for debt financing so far. Further, it will require a total of Rs 7,800 crore of equity for its announced projects, at 75:25 debt-equity ratio.
With a current net worth of Rs 2,400 crore, and the first commissioning expected only by June ’12, there may be more equity dilution at a later stage. As a result, the stock does not seem to have enough attractiveness currently, from an investment perspective. Investors may wait for it to list and find its level, before taking exposure.

IPO Details

Price Band: Rs 40-45

Net issue size: Rs 1,563-1 ,758 crore

Date: October 12 - 15

via ET