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 hydroelectric projects totaling 167 MW in Arunachal Pradesh. These hydroelectric projects are proposed to be developed as run-of-river projects. is a subsidiary of IBREL, a part of the Indiabulls Group and is listed on the BSE and NSE. IBREL focuses on property construction and development, project management, investment advisory and construction services, with operations covering all aspects of real estate development, from land identification and acquisition, to planning, execution, construction and commercialization of its projects (including architecture, design management and interior design), to the maintenance and management of its finished promotions, as well as the provision of consulting services in engineering, industrial and technical matters to various industries, including companies dedicated to the construction-promotion of real estate and infrastructure projects.
Company Energy Projects:
o The Amravati Phase I power project will have two supercritical units of 660 MW each, with a 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 supercritical units of 660 MW each, with a combined capacity of 1,320 MW.
o The Amravati Phase II Power Project will have two supercritical units of 660 MW each, with a combined capacity of 1,320 MW.
o Chhattisgarh Power Project is expected to have two supercritical units of 660 MW each, with a combined capacity of 1,320 MW.
Some reasons to invest that are in favor of Indiabulls Power:
o Strong portfolio of power generation projects
o The Company has entered into long-term power intake agreements for the Amravati Phase I Power Project and the Bhaiyathan Power Project.
o Association with the Indiabulls Group.
o Strategic association with key shareholders
o Experienced management team with a track record of executing projects.
Some of the negative weight reasons:
o The promoters do not have experience in the electricity sector.
o Indiabulls Power will have to rely on state electricity boards for long-term supply.
o Returns on projects won through bidding may not be high.
Risks involved:
o There are pending lawsuits against the Directors of the Company, Promoter Companies and the Promoter Group.
o SEBI and stock exchanges have taken certain regulatory actions against Indiabulls Securities Limited.
o Some of the Subsidiary Companies and the Promoter Group have incurred losses and/or have had negative equity in the last 3 years.
o The Company relies on its subsidiaries to generate profits, and any decrease in its subsidiaries’ profits or in their ability to pay dividends to the Company could materially and adversely affect its results of operations.
o The success of the Company’s energy projects depends on the reliable and stable supply of water to the network
projects In the event of a water shortage, power projects may be forced to reduce their water consumption, which would reduce their power generation capacity.
Objective of the initial public offering:
It is proposed that the Net Product of the Issuance be used by the Company for the following purposes:
o To partially finance the construction and development of Phase I of the 1,320 MW Amravati Power Project;
o Financing of the equity contribution in the Company’s wholly owned subsidiary, IRL, to partially finance the construction and development of the 1,335 MW Nashik Power Project; Y
o General corporate purpose.
Some facts and figures:
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Start date: October 12, 2009
End date: October 15, 2009
Issue size: 339800000
Face Value (Rs.) – 10.00
Price band (Rs.) – 40.00 – 45.00
offer details
Market Lot – 150
Tick Price (Rs.) – 1.00
Minimum Price (Rs.)- 40.00
Minimum Bid Quantity – 150
Maximum bid amount: 278635950
IPO Rating: This issue has been rated by CRISIL Limited as 3/5, indicating average fundamentals.
Registrar of issue: Karvy Computershare Private Limited
Book Running Lead Manager(s): Morgan Stanley India Company Private Limited
Is it worth investing?
The $315 million initial public offering of Indiabulls Power Ltd, which will open for subscription on October 12, 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 energy generated from these projects under a combination of long-term PPAs to industrial and state consumers and on a commercial basis. The Company is also developing four medium-sized hydroelectric projects totaling 167 MW in Arunachal Pradesh. The Company proposes to use a portion of the net proceeds of the Issuance to partially finance the construction and development of Phase I of the Amravati Power Project and the Nashik Power Project (the “Identified Projects”). Indiabulls Real Estate currently owns 71.4 percent of the company. UK-based billionaire LN Mittal’s LNM India Internet Ventures owns a 10.7 percent stake, while private equity firm FIM Ltd owns the remaining 17.9 percent. The company also controls one of the world’s largest coal mines to provide low-cost coal to its plants and received large coal bond allocations at last year’s meeting of empowered ministers. Given the higher execution risks associated with power projects fueled by the group’s lack of prior experience in setting up or operating a power plant, the issue price appears high. But considering the experienced management team with a track record of executing projects, it is worth investing in the long term.