Indian Power IPO Cleans Up — Just Not Their Emissions

Here’s an investing thesis that’s conceptually easy to grasp: India needs to spend $500 billion by 2012 building power plants and infrastructure to deliver power to its citizens, so invest in Indian power plant builders. On the strength and clarity of this seemingly sure winner, investors piled into Reliance Power’s IPO on the Bombay Stock Exchange. In fact, the 228 million-share offering sold out in a single minute –with most shares going at about 450 rupees ($11.50) a pop. That $3 billion makes it the biggest Indian IPO ever, eclipsing last year’s largest, from real estate developer DLF.

We’d like to tell you that Reliance is a future-forward power company working on a lot of innovative renewable energy technologies. But we can’t. It’s in fact a standard power company that primarily relies on fossil fuel plants. And that’s not a good thing, since we all know that — sooner or later — the whole world, including developing powerhouses like China and India, will have to start using cleaner technologies. India has a ton of potential for renewables, but as this snapshot shows, the Indian cleantech industry is in its infancy.

Interestingly, Morgan Stanley was underwhelmed by the investor rush into the electricity IPO, downgrading Reliance Energy, Reliance Power’s parent company.

“The key reason for the downgrade is the valuation of Reliance Power, which we value at $11.85 billion, while Reliance Energy stock seems to be discounting the value of Reliance Power at $23 bllion-$25 billion.”

Another analyst at Edelweiss Capital said the valuation requires perfect execution on Reliance’s big pipeline of projects. This is a company with 941 megawatts of installed capacity and at least 13 gigawatts on the drawing board. (Yikes).

The centerpieces of the company’s plans are two plants in the Dadri and Sasan districts. The Dadri project is a 5.5-gigawatt, gas-fired plant that will be the largest of its kind in the world. The second project, which is a major reason for the IPO, is a 4-gigawatt coal project.

Given the company’s decidedly dirtytech orientation, we add that investors are also betting that no disruptive cleantech chips away at the amount of power that India needs from the company’s bread-and-butter fossil fuel plants.


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