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: Indiabulls Power Ltd (IPL), part of Indiabulls Group, will launch its high-profile initial public offering (IPO) on Monday. The company, which plans to generate both thermal and hydro power, is entering into the highly sought-after and supply-deficient power sector.

On the face of things, their price band of Rs 40-45 per share looks to be sound. However, the promoters seem to be building on their goodwill generated from its other listed company and using it in this issue.

At present, there are a lot of uncertainties dogging the issue that could give the real long-term investor some comfort. The fact that there is a deficit in the power sector is not the only reason for an IPO in that sector to succeed.

IPL is raising equity 3-4 years before they will generate any positive cash flow from operations, and this too, if everything goes as per the plan. This is a huge operational risk as execution of a project in the power sector has seldom met targets. The fact remains that at best, IPL, which has no operational power plant at the moment, may, if all goes well, have its first unit operational only by June 2012. And what happens till then is anybody’s guess.

While the quantum of the investment seems small and the fact that there are enough anchor investors do bring in some confidence, especially for the long-term investors, but there are a lot many concerns regarding short-term investments. Subsequently, many of them can move over to the long-term zone.

The real concerns the analysts have brought out that the market capitalisation per mega watt works out to be at around Rs 1.39 crore at the asking price of Rs 45 per share. This is marginally higher than that of Reliance Power at Rs 1.17 crore per mw at a much higher asking price though. However, the market has already absorbed Adani Power issue atRs 3.34 crore (Mundra) and that of NTPC at Rs 3.51 crore, say analysts. So the pricing seems to be stable. All eyes, therefore, will be on execution.

Some of the positives, however, hover around the fact that the promoter’s shareholding will not drop drastically, indicating that they have strong confidence in the project.

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