Indiabulls Power IPO – Should You Invest?
Company profile: Indiabulls Power was established in 2007 to capitalize on emerging opportunities in the Indian power sector. The Company has five thermal power projects under development, which will have a combined installed capacity of 6,615 MW. The Company is also developing four medium sized hydro-power projects aggregating to 167 MW in Arunachal Pradesh. These hydro-power projects are proposed to be developed as run-of-the river projects. is a subsidiary of IBREL, a part of the Indiabulls Group and listed on the BSE and the NSE. IBREL focuses on construction and development of properties, project management, investment advisory and construction services, with operations spanning all aspects of real estate development, from the identification and acquisition of land, to the planning, execution, construction and marketing of its projects (including architecture, design management and interior design), through to the maintenance and management of its completed developments, as well as providing consultancy services on engineering, industrial and technical matters to various industries including companies engaged in construction-development of real estate and infrastructure projects.
The Company’s Power Projects:
o Amravati Phase I Power Project will have two super-critical units of 660 MW each, with combined capacity of 1,320 MW.
o Nashik Power Project will consist of five units of 135 MW each and two units of 330 MW each, with a combined capacity of 1,335 MW.
o Bhaiyathan Power Project will have two super-critical units of 660 MW each, with combined capacity of 1,320 MW.
o Amravati Phase II Power Project will have two super-critical units of 660 MW each, with combined capacity of 1,320 MW.
o Chhattisgarh Power Project is expected to have two super-critical units of 660 MW each, with combined capacity of 1,320 MW.
Some reasons to invest which are in favour of Indiabulls Power:
o Strong Portfolio of Power Generation Projects
o The Company has entered into long-term power off-take arrangements for the Amravati Phase I Power Project and the Bhaiyathan Power Project.
o Association with the Indiabulls Group.
o Strategic partnership with key shareholders
o Experienced management team with a track record of project execution.
Some of the negatively weighing reasons:
o Promoters don’t have any experience in the power sector.
o Indiabulls Power will have to depend on state electricity boards for offtake over the long term.
o The returns on projects won through competitive bidding may not turn out be high.
Risks involved:
o There are outstanding litigations against the Company’s Directors, Promoter and Promoter Group companies.
o Certain regulatory actions have been taken by SEBI and the Stock Exchanges against Indiabulls Securities Limited.
o Some of the Subsidiaries and Promoter Group Companies have incurred losses and/or have had negative net worth in the last 3 years.
o The Company relies on its subsidiaries to generate earnings, and any decline in the earnings of its subsidiaries or their ability to pay dividends to the Company could materially and adversely affect its results of operations.
o The success of the Company’s power projects depends on the reliable and stable supply of water to the power
projects. In the event of water shortages, the power projects may be required to reduce their water consumption, which would reduce their power generation capability.
Objective of the IPO:
The Net Proceeds of the Issue are proposed to be utilised by the Company for the following objects:
o To part finance the construction and development of the 1,320 MW Amravati Power Project Phase-I;
o Funding equity contribution in the Company’s wholly owned subsidiary, IRL, to part finance the construction and development of the 1,335 MW Nashik Power Project; and
o General corporate purposes.
Some facts and figures:
Issue Highlights
Start Date-12 Oct 2009
End Date-15 Oct 2009
Issue Size- 339800000
Face Value (Rs.) – 10.00
Price Band (Rs.) – 40.00 – 45.00
Bid Details
Market Lot – 150
Tick Price (Rs.) – 1.00
Minimum Price (Rs.)- 40.00
Minimum Bid Qty- 150
MaximumBid Qty- 278635950
IPO grading: This Issue has been graded by CRISIL Limited as 3/5, indicating average fundamentals.
Registrar to the Issue: Karvy Computershare Private Limited
Book Running Lead Manager/s: Morgan Stanley India Company Private Limited
Is it worth to invest?
Indiabulls Power Ltd’s $315 million IPO which will open for subscription on the 12th October, 2009 has five thermal power projects under development, which will have a combined installed capacity of 6,615 MW. The Company intends to sell the power generated from these projects under a combination of long-term PPAs to industrial and state-owned consumers and on merchant basis. The Company is also developing four medium sized hydro-power projects aggregating to 167 MW in Arunachal Pradesh. Company proposes to utilize a portion of the Net Proceeds of the Issue to part finance the construction and development of Amravati Power Project Phase – I and Nashik Power Project (the “Identified Projects”). Indiabulls Real Estate currently holds 71.4 percent in the company. UK-based billionaire L.N. Mittal’s LNM India Internet Ventures holds a 10.7 percent stake, while private equity firm FIM Ltd holds the remaining 17.9 percent. The company also controls one of the largest coal mines to provide low cost coal to its plants and had received large coal linkage allocations in last year’s empowered ministers meeting. Given the higher execution risks associated with the power projects enhanced by no prior experience of the group in setting up or operating a power plant, the issue price seems to be steep. But taking into consideration the experienced management team with a track record of project execution the issue is worth to invest for long-term.
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