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Adani Power IPO: Invest now or wait for listing?

This article was posted on Jul 28, 2009 and is filed under Stock Views

ET: The much-awaited big-ticket IPO from the Adani group opened on Tuesday amid high expectations from the group that saw its earlier offering, the Mundra Port & SEZ (MPSEZ) issue, being oversubscribed a record 116 times in November 2007.

Adani Power has completed allocation of shares to anchor investors. It allocated 5.25 crore shares to the domestic and foreign institutional investors for close to Rs 502.14 crore.

Foreign institutional buyers include T Rowe Price, AIC, Ecofin, TPG and Legg Mason. Among domestic institutions, Sundaram Mutual Fund pumped in Rs 81 crore in Adani Power and was allotted shares for Rs 95 each. While TPG and Legg Mason were allotted shares through Credit Swice and CLSA, respectively. T Rowe Price got the highest allocation of Rs 220.10 crore for equity share of Rs 95 each. AIC, Ecofin, TPG and Legg Mason invested Rs 24.20 crore, Rs 24.40, Rs 80 crore and Rs 72.4 crore, respectively.

Adani Power will be the first IPO that will follow the anchor investor norms, made mandatory by Sebi. Adani Power was to offer 30.17-crore shares with a price band of Rs 90-100 per share. Flagship company and promoter of Adani Power, Adani Enterprise, will dilute 13.84% of its holding in the company.

The company proposes to use the proceeds of the IPO to fund its power projects—Mundra Phase IV and Tirodaeach having capacity of 1,980 MW. The total fund requirement for these two projects is about Rs 18,200 crore, including an equity component of about Rs 3,600 crore. Since about Rs 384 crore of equity has already been deployed, this issue would meet the balance equity.

Since the company hasn’t begun generating power as yet, its financials do not reflect the potential and it will have to be valued based on its projected capacity. At a price of Rs 90-100, the company would command a M-cap of Rs 19,600- Rs 21,800 crore.

There is an upside to its earnings, considering its strategy of having fixed sale agreement and spot sale on merchant basis, which makes the valuation further attractive. While the price at the upper band looks slightly expensive, growth seeking investors can subscribe to the issue at the lower band, with a long term horizon. Risk averse investors may however wait for its listing as they may get the stock at a lower price in the secondary market.

Prabhudas Lilladher has advised investors to subscribe to the initial public offering of Adani Power.

A high power base deficit at 9.5% and peak deficit at 13.8% in India is likely to continue as additions in power sector remain sluggish. With this backdrop, a player with financial muscle, land clearance and assured offtake is likely to add faster capacities, thus improving viability of power plants in the long term.

The company is coming to the capital market at a relatively matured stage, thus making it a long-term safe bet. At the higher end of the band, APL is expected to be valued at 3.5xFY10E, 3.0xFY11E and 2.3xFY12E to post-issue book value.

The stock will prove a good long-term investment as capacities get operational amidst a substantial power demand supply mismatch. Subscribe, the report said.
According to Angel Broking, the initial public offering of Adani Power is fairly priced. The brokerage has a neutral view on the IPO.

Adani Power has drawn up ambitious expansion plans, which, when complete, will catapult it into the ivy league of power generating companies in India. In fact, the company also has the vision of having 20,000 MW of installed capacity by 2020. The company’s plants are located strategically and with adequate fuel supply.

However, the company’s lack of a significant operating history casts a shadow over its ability to execute projects of such mammoth scale.

To add to the skepticism, the company has decided to use only Chinese equipment at all its plants, which have been dogged by a host of technical issues when used for operating Indian plants in the past. On the project financing front too, the company has over-leveraged itself with a Debt-to-Equity ratio of 80%. We have valued all upcoming projects of the company individually and arrived at a fair value of Rs 82/share, while strictly adhering to the execution timeline given in the RHP.

Angel Broking has assumed the Cost of Debt and Cost of Equity at 11.25% and 14%, respectively. The broking house believes that the IPO is fairly priced and keeps a Neutral view on it.

Reliance Money has recommended investors to invest in Adani Power IPO with a long-term perspective.

“On the valuation front, Adani Power gets a BV of Rs 33.5-36.3 at the price band of Rs 90-100. The stock quotes at P/BV of 2.7x and 2.8x post dilution. Looking at the long term growth prospects, we believe APL is a good opportunity for investors and recommend “Subscribe” with a long-term prospective,” the brokerage said.

Arihant Capital Market has advised investors to subscribe to the initial public offering of Adani Power with a long-term perspective.

“Power sector in India is riding high on the huge investments in capacity expansion plans due to aggressive plans of government to enhance capacity. Also India faces acute power shortage and with the deregulation in the power sector — there are plenty of opportunities up for grabs for private sector players.

Adani Power currently has no operational power plants. The company has laid out an ambitious plan of 6,600-MW power generation capacity by April 2012. Keeping in mind APL’s advantages in terms of its presence in power deficient areas, its status as an integrated player and presence in a sector which is set for growth and inherent demand, we believe APL is a good option for investors with a long-term perspective. We recommend our investors to subscribe to the issue with a long term view in mind,” said Arihant Capital Market note.

source: Economictimes

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