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RPL Review from EquityMaster - AVOID

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Forum: Initial Public Offers (IPO's)
Posted By: Vikram Singh
Posted On: 1/13/2008 10:02:01 PM
Reply Count: 6
Last Update: 2/9/2012 10:46:47 PM
Last Replier: Vikram Singh
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Vikram Singh
Registered User
Member Since: 6/26/2007
Message Posted: 48
Posted on 1/13/2008 10:02:01 PM

RPL Review from EquityMaster - AVOID
Equitymaster report concluding remarks:

There is no real comparison for RPL in the Indian context. There are large listed players like NTPC and Tata Power (also Reliance Energy) that can be talked about as comparables for RPL. But these companies have steady revenue streams unlike RPL, which shall generate its first business income possibly in 2010, when Phase I of the Rosa project gets commissioned. In this context, readers need to go back a bit in the past.

RPL’s promoter, Reliance Energy’s proposal to set up the world’s largest gas based generation unit almost 4 years back but is yet to materialise. We recognise that this particular project has suffered because of political influence and infighting between the brothers on the fuel issue. But that is the point. Mega projects attract mega headaches.

What is the guarantee that these sorts of issues will not dog the ambitious power plans of RPL. We are not saying that it is a bad project or that the management of RPL cannot make this work. But these are time-sensitive issues that can hurt the returns on any project. These are serious issues.

As far as valuations are concerned, w e believe that other listed power generators are available at much attractive levels than RPL (where there is no underlying business to calculate the valuations!). Even if one were to assume the equity value post the IPO, which will be around Rs 137 bn (at the higher price level of Rs 450 per share) or a per share value of Rs 61, the price to book value at which the issue has been priced is 7.4 times.

Compared to this, India’s leading public sector banks, which have a long and good track record and earning return on equity (RoE) of nearly 14% to 16% are available at almost 3 to 3.5 times book value.

Alternatively, we have calculated the equity value of RPL using a 20-year discounted cash flow model (10 years of investment phase and 10 years of growth phase). We have assumed the company’s RoE to range between 14% and 19% (19% because we expect some part of the capacity to be available for merchant users where RoE can touch 30% levels) and a discount rate of 12%, which is in fact lesser than Infosys’ 14%. This way, the equity value of the company comes to Rs 338 per share. This is 25% lesser than R s 450 at which the IPO has been priced at the higher end. Our cash flow estimates underpin a best-case scenario for the company as we have assumed that all planned projects will be commissioned on time, which in itself is questionable.

Finally, even if the price of RPL doubles on the listing day, the company ’s market capitalisation will be higher than NTPC’s, which already operates over 28,000 MW of generation capacity and plans to take it to 51,000 MW by 2012.

Overall, considering the execution risks involved, expensive valuations and serious corporate governance issues, we would recommend our subscribers to ‘AVOID’ applying to the IPO.
Registered User
Member Since:
Messages Posted: 1
Posted on 1/14/2008 3:27:24 AM

Re: RPL Review from EquityMaster - AVOID

Its a good detailed description. Well this is for a long term perspective.
But i want to invest and wanna sell it of on the listing day.

In that case, will you advise me to go for it.....
Is there any chance for the price to be dropped on teh listing day.

Kindly reply.
Registered User
Member Since:
Messages Posted: 14
Posted on 1/14/2008 9:48:19 AM

Re: RPL Review from EquityMaster - AVOID
valuable information thank you
Vikram Singh
Registered User
Member Since: 6/26/2007
Messages Posted: 48
Posted on 1/14/2008 11:20:04 AM

Re: RPL Review from EquityMaster - AVOID
Hi Nonstopkaran,
I am personally applying for short term gains (listing gains).
Don't worry it should should not list below issue price.
Anonymous User

Posted on 8/17/2009 4:58:36 AM

What say now people?
So did you guys make "good money" on the day the stock listed?
Registered User
Member Since: 11/13/2010
Messages Posted: 1
Posted on 11/17/2010 3:30:14 AM

KOSTAK 2400 - 1LAC
Ahmad Ali
Anonymous User

Posted on 2/9/2012 10:46:47 PM

Never ever Open AC with Nirmal Bang Securities
Never ever open your open account with Nirmal Bang Securities Pvt Limited.

They will commit fraud like they will burn your ass
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