Random Thoughts

RPower IPO: Costly dreams

The legend of late Dhirubhai Ambani and the aura behind it seems to be ever lasting. As expected, the IPO of Reliance Power (RPower) was fully subscribed within minutes of its opening. And within an hour, it was oversubscribed by 6-7 times.

Had Shakespeare known the Ambanis, he would have never asked what lies in a name? (That can also be true for the name Gandhi for that matter!!). It is difficult to find any other logic in the enthusiasm of investors towards RPower but the gravity pull of the name that promotes it. RPower is the big project of Anil Ambani, the youngest of the two sons of Dhirubhai.

As of now the company is in the business of selling dreams. It has plans to set up thousands of megawatts of power plants in India but all this is a part of distant future, as distant as next half a decade.

Ok, that was true even for Reliance Petroleum (RPL), a company promoted by the elder brother Mukesh Ambani. At the time of its IPO in mid-2006, RPL was not having any business operations to boast off, very similar to RPower. RPL had raised money to build a petroleum refinery, a project that would take at least 18-24 months to commence. But it needs to be noted that Reliance Industries, the promoter of RPL had an experience in building and running a world-class refinery of similar size. RPower on the other hand doesn’t enjoy this advantage. Reliance Energy, which holds 45% stake in RPower, lacks any major experience in power generation.

Thus, as it turns out, people are not minding to buy dreams at whatever cost. For a logical mind, the RPower IPO appears to be a high priced affair. This may get even pricier if it gets a good listing on the bourses. But the scrip may even be bought at a cheaper rate some time later. This may be a possibility given the long gestation period of the RPower’s projects and turbulent times on the bourses.

Labels: Money matters

posted by Ranjit @ 1/16/2008 12:38:00 pm