IPO News:7 Jan2007

Reliance Power will oversubscribe hopelessly

Everybody will not get much allotment in the Reliance Power IPO, because it will be hopelessly oversubscribed. So you need to now focus your eyes on what happens post-listing and when you take a look at the grey market then you worry a little bit, not a little bit more than a little bit because the grey market price is somewhere around Rs 900 that’s double of the IPO price. Whatever good to that one is heard from the management on the Reliance Power IPO and there were many positives, which came through from the media conference at Rs 900 its very difficult unless the market remains in this very frothy frame of mind on the sector its extremely difficult to justify that price because at Rs 900 you are talking about 2 lakh crore marketcap for Reliance Power, you got to look four-five years out and still you will be scratching your heads to justify that.

Future Cap Holdings still in nascent stage

Future Capital Holdings is all set to hit the primary markets with an offer of 64 lakh shares. The price band is in the range of Rs 700-765 per share.

It is very difficult to compare it to peers. The peers will be Indiabulls Financial Services or Reliance Capital. But the company is currently in a nascent stage. Out of the three areas, where it operates, only one is fully operational and the others are still being set up. So, it is very difficult to give valuations based on the current financials.

For the first half of the year, the company has posted a net loss of Rs 12 crore. It is very difficult to value the company based on the present criteria. You have to value it based on the future values and see how the businesses are likely to pan out. This company has three main businesses: one is the investment advisory services, under which they do advisory services for a lot of funds (onshore and offshore). Under this, they also operate PE sort of investments. That is where the main revenues are coming from, right now.

The other is the consumer finance business, which they are planning to rollout in the future. At the moment, they have a tie-up with Pantaloon Retail arm, where they have exclusive rights to supply consumer finance for all consumer durables that are being sold in Pantaloon showrooms.

Also, they would be rolling out Future Money, which will be like a distribution arm, which will distribute credit cards and insurance business.

If you look at the valuations, HSBC values the company at Rs 6,000 crore, while DSP Merill Lynch values it at Rs 3,550 crore. So, the IPO is somewhere in between the two valuations.