Excerpt from an interview with Devem Choksi from K R Choksey.
Q: How would you approach Reliance Power now?
Deven Choksi: I think if you look at the comparable space, then you find a probable answer to that.
Reliance Power with about 5500 mw of capacity in 2012 would be comparatively lower to Tata Power’s 10,000-mw capacity and NTPC’s 15,000 mw capacity in 2012.
If you extrapolate these numbers and further calculate the enterprise value, if per mw issue is calculated, then in case of Tata Power, the enterprise value comes out somewhere around Rs 2.75 crore per mw and in case of NTPC, it is at around Rs 3.4 crore per mw. In case of Reliance Power, it is around Rs 50.5 crore per mw. So from these numbers, it’s clearly established that Reliance Power is an expensive stock even from that point of view and even in 2012.
If one has to look at the near term and then look at the long-term - in the near term, NTPC offers a better opportunity if one has to invest in power space because at FY09 earnings estimate of Rs 11.5 per share, you would probably find NTPC available at close to Rs 16 versus Tata Power’s relative valuations of around Rs 22.
So in my viewpoint, NTPC would be a safer bet and Reliance Power would be far off as far as this calculation goes. So, clearly the choice would be NTPC if one has to go into power space or generation space, which is expected to grow around 15%-20% in next two to three years on a CAGR basis.
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I would squarely blame it on SEBI and the Merchant Bankers. The SEBI should start coming up with guidelines which should specify a formula for pricing issues for new company's. If the price looks to be far high as compared to its peers, SEBI has to strike it down.
The promoter's should not be allowed to enrich at the cost of non savvy gullible investors.I would strongly recommend rating of public issues. The Credit rating agencies should come up with this service offering. The Investor protection committee should start becoming more active. They should start educating the investors. The stock exchanges,Brokers and SEBI should be focusing on investors education. As far as I am aware of,SEBI and the Company law board do have an investors protection fund.
The enterprise valuation disparity in case of Reliance power is about 15 times higher than the existing proven power company's. It really defies my logic how the Merchant Banker's and SEBI can clear a green field project with a huge premium given the fact that the promoters have invested at a fraction of the issue price.
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