R Power: solace for speculators
Reliance Power shareholders, who received solace with the announcement of a bonus of 3:5, saw the share price close at Rs 450 per share, the institutional issue price.
The good news is that Reliance Energy shareholders have nothing to lose thanks to
Anil Ambani's move to let his personal holding in Reliance Power fall to 40% from 45% and to enable Reliance Energy's stake in Reliance Power to be maintained at 45%. This altruistic move is seen by the market as a great opportunity for the high net worth individuals to lessen their woes. There are also others who made hay when the stock tumbled. Besides, the equity dilution is expected to be at around 6%, while nothing has changed on the earnings front. So long-term and short-term valuation parameters remain unchanged -- a lot of potential based on little delivery.
A section of investors believes that even this bonus issue move, which cost Anil Ambani Rs 5,000 crore, is not that significant if one considers the gains that he made, post-listing, since the valuation is now Rs 75,000 crore. Fundamentally, the power industry is unique, because there is a fixed return on equity applicable for projects. When plants reach optimum capacity, the earnings growth is limited to the power generating capacity at best.
Contributed by Akash Joshi