Indiabulls Power IPO subscribed fully; should you invest?

BSE | NSE 10/02/12

Adani Power and NHPC have not been able to create investment interests, inspite of both of them being listed for the last over a month. This will see less interest coming in from Retail category and virtually no interest coming in from HNI category. Also, promoters of the company have no experience of executing mega infrastructure projects.

For retail investors, it is necessary to be cautious, as generally they go for cut off. There is no such compulsion on part of the prospective investors, to go for the issue, in view of Adani Power and NHPC, now available at much better valuations, then this company.

One may try to punt on the issue for momentum play, which may also be risky. So, at Rs 40, it can be given an investment consideration, and anything beyond 40 is a clear no."

Brokerages views

Prabhudas Lilladher - IPL is looking to add five projects totaling 6615MW of capacity over the next 4-5 years time frame. The first three projects are relatively at advanced stage of implementation with coal linkages/captive mines in place & BTG equipment supply orders to Chinese vendors already awarded for the first 2 projects. Based on our assumptions (as per RHP & management analyst meet interaction), the NAV of current projects works out to Rs 37, with ~60% value accruing due to pit-head captive mine at power projects of Chhattisgarh."
            
"At the higher end of the band, IPL is expected to be valued at 2.1xFY12E to post-issue book value. We value IPL's 5295MW on DCFE basis at Rs 37 and have given a 25% premium to capture the value of future projects, to arrive at Rs46 per share value. We would recommend Subscribe for listing gains.

RR Financial Consultants - The company was set up just two years ago and has no operating history. All its power plants are under various stages of completion. The profits of the company in the last two years are on account of non-core activities. So, projecting cash flows would be a risky proposition considering qualitative treatment of many variables involved.

If we assume a capacity of 6600 MW for Indiabulls Power the M Cap / MW would come out to be 1.20 - 1.35 at either of the price bands. However, other players have capacities in operation while and are expected to have significantly higher capacities by the time Indiabulls starts its operations. Hence the discount is justified considering the size of operations and schedule of cash flow generation. Considering the potential and scalability of operations, the issue can be subscribed to by an investor willing to hold it for 3 or more years to fully realise and profit from the business potential of the company.

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