Reliance Power, Emaar IPOs May Drive Next Phase Of Rally

The stock market rally has left investors gasping for breath. When the market is in an uncertain territory like this, opinion always gets sharply divided on whether the new levels are sustainable or not. With the secondary market in a quandary, the primary market may just be the one to show the way.

The reason being some large, and significant public issues like Reliance Power, Emaar MGF, Edelweiss and Wockhardt Hospital are ready to enter the market. If they get lapped up by investors without denting the secondary market, then the market may just get the vote of confidence they are looking. Among the lot, Reliance Power and Emaar are the two most important issues.

In terms of size, they are the largest issues among the 60 or so draft red herring prospectus (DRHPs) filed with Sebi currently. Reliance Power aims to raise a little over Rs 6,000 crore and Emaar MGF is planning to raise Rs 5,000-6,000 crore.

These issues could see the sectors they represent — power and real estate — emerge as the drivers of the next phase of the market rally. Both these issues are looking at ambitious valuations. Reliance Power is reportedly looking at a valuation of around Rs 90,000 crore, while Emaar is looking at a Rs 50,000 crore to 60,000 crore market cap.

Reliance Power issue, in particular, is important. This issue, like the Reliance Petroleum issue in April 2006, once again asks investors to put their faith on the Reliance name. Reliance Petro IPO had raised Rs 2,700 crore from retail investors for a greenfield Rs 27,000-crore refinery project which is likely to go on stream in 2009. Such was the frenzy that the issue was oversubscribed around 68 times.

Investors haven’t been disappointed. The share price is now around Rs 160, up 160% from the IPO price. Reliance Petro’s market cap is over Rs 70,000 crore now.

Reliance Power is attempting something even more ambitious. It plans to raise over Rs 6,000 crore for 12 power projects, aggregating 24,000 MW. Considering Rs 4 crore as expense per mega watt as a thumb rule, Reliance Power is talking of implementing around Rs 100,000 crore worth of projects almost simultaneously. No company in the history of India Inc has perhaps attempted something of this magnitude.

How this issue performs on the primary market will no doubt be important. Media reported last week that the issue is already trading at almost 50% premium in the grey market. Successful closing of this issue can have tremendous spin-offs for the power sector, making it one of the most important sectors for the market.