BOOK BUILDING PROCESS OF IPO PRICING.ANALYSIS OF RELIANCE POWER AND VALUATION OF OMAXE LIMITED IPO.

PRESENTED BY…

G.LAKSHMI NARASIMHA MURTHY (11)

1KIRLOSKAR INSTITUTE OF ADVANCED MANAGEMENT STUDIES.04/08/23

OBJECTIVES…….

• Study the Book Building Process of an IPO pricing.

• Study the Risk Factors associated with Reliance Power IPO.

• Analyzing the Reliance Power IPO Pricing by considering the Risk Factors.

• Valuation of Omaxe Limited IPO pricing by considering the Risk Factors.

• Get business for the company through various activities undertaken.

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ACTIVITIES….

• Sale of Mutual Funds.

• Empanelment of Independent Financial Advisors.

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WHAT, HOW, WHY, WHEN..

• IPO.

• Fixed pricing.

• Book building process of pricing.

• Green shoe option.

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METHODOLOGY…..

• Interacting with various Investors.

• Interacting with IFA’s.

• Study of the sector.

• Study of various Risk Factors associated.

• Categorizing the Risk Factors based on the frequency of occurrence and impact on the company.

• Analysis of the IPO pricing based on the Risk Factors.

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POWER SECTOR…• Demand – Supply gap scenario.

Eleventh five year plan motive “Power for All”.

Total Energy Requirement.

Energy Requirement(GWH)

Peak Load (MW)

Total 2011-12 2016-17 968,659. 1,392,066

2011-12 2016-17157,325 223,662

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RELIANCE POWER LIMITED..

• Part of mega Reliance ADA group.

Strengths..

• One of the largest portfolio of power generation projects under development.

• 13 projects in all – Rosa Phase-1 (600 MW coal Fired in UP by 2010)

– Rosa Phase-2(600 MW Coal fired by September 2010)

– Butibori (300 MW coal fired in Maharashtra )

– Sasan (the largest pithead coal fired 3960 MW plant by April 2016.)

– Shahapur (1200 MW coal fired and 2800 MW gas fired by December 2011)

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CONTINUE..– Urthing Sobla (400 MW hydro project by March 2014 )

– Dadri (the largest gas fired project in one location 7480 MW)

• Diversified portfolio of projects.

• ADAG experience position and brand value in the market.

Strategy….

• Capitalizing on the growth.

• Using supercritical technology and reducing operational efficiency.

• Memorandum of understandings.

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Risk Factors…

• Internal– No operating history

– Legal Complaints against the company and its promoters.

– Failure to commence operations on time.

– Dependence on Reliance ADA group.

– Substantial Borrowing of funds.

– Availability of fuel.

– Increase in prices of raw materials.

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Risk Factors…

• External– Stiff competition.

– Political economical and social condition of the country.

– Slow down of Indian economic growth.

– Inflation.

• Analysis.Issue price: Rs. 405-Rs. 450.

Share value Rs.10.

Size :26,00,00,000 shares.

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Analysis…

• Objectives.– Funding subsidiaries to finance the projects.

– General corporate purpose

– Achieve benefits from listing of the shares.

• If everything goes as per the plan then the total installed capacity would be 28200 MW by 2016.

• Current capacity of NTPC-28000 MW.

• Plans to achieve 66000 MW by 2017.

• Tata power current capacity-2300 MW.

• Plans to expand by another 10000 MW by 2012.

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Continue..• Assuming all the risk factor are in favor and price per

share is Rs.115.

• An investor subscribed for 225 shares would be investing 225*Rs.115=Rs.25875.– If shares are listed at Rs. 900. then proposed returns will be

1. At 4x o/s we have 56*900=50400+{25875-(56*450)}=Rs.51075.

Net Profit (without tax)=51075-25875=Rs.25200.

Return On Investment of Rs.25875=97.4%

2. At 7x o/s we have 32*900=28800+{25875-(32*450)}=Rs.40275.Net Profit (without tax)=40275-25875=Rs.14400Return On Investment of Rs.25875=55.6%

Thus at very high subscription the returns are decreasing drastically

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Continue..

• Present price Rs 131.

• Effect of inflation and political scenario.

• Issue of bonus shares 3:5.

• To what extent the issue price is justified considering the risk factors.

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Realty sector.. Omaxe Limited.• Real estate construction and development company.

• Operating in 30 cities and 9 states.

• In to residential and commercial projects.

• As of march 2007 company has 52 projects to its name.

• Strengths..– Experience in construction industry.

– Huge land base (3225 acres of land.)

– Established brand image.

– Diversified business

– Innoation.

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• Strategy..– Expanding in to new locations tier-2 and tier-3 cities.

– Outsourcing to increase sale of operations

– Diversifying the portfolio of projects.

– Enter in to joint ventures and collaborations.

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Risk Factors…

• Availability of land.

• Cost of acquisition of land.

• Availability for financing for customers

• Cost of raw materials

• Limited operating history in reality business

• Dependency on labor and environmental conditions.

• Political and economic condition of India.

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Analysis…

• IPO pricing– Price band: Rs. 265-Rs. 310.

– Face value Rs. 10

– Size: Rs 472-Rs. 552 crores.

• Objectives.– The payments related to lands.

– The repayment of the land.

– The development and construction cost of some of the projects.

– General corporate and working capital expenditure.

– To achieve the benefits of being listed on stock market.

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Continue….

• Comparison to its peers..

• Price Justification .

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Activities….

• Sale of Mutual Funds.– Rs.1.5 lakhs of funds sold as a group.

• Methodology.– Calling customers.

– Friends and relatives.

– Investment awareness programs.

• Empanelment of IFA’s.

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THANK YOU…..

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