IPO - Indiabulls Power

Issue details

Issue opens : October 12, 2009
Issue closes : October 15, 2009
Issue size : 33.98 crore shares
Green shoe option : 5.1 crore shares
Face value : Rs10 each
Break-up of fresh issue
to public
QIB's portion : 20.4 crore shares
Retail portion : 10.2 crore shares
Non-institutional portion : 3.4 crore shares
Price band : Rs40-45

Object of the issue
The net proceeds of the issue are proposed to be utilised to
* Part finance the construction and development of the 1,320
mega watt (MW) Amravati Power Project (Phase I);
* Fund equity contribution in the company's wholly-owned
subsidiary, IRL, to part finance the construction and
development of the 1,335MW Nashik Power Project; and
* General corporate purposes.

Company background
IPL is a part of Indiabulls Group, one of the leading Indian
business houses with business interests in real estate,
infrastructure, financial services, retail, multiplex and power
sectors. Incorporated on October 08, 2007, IPL is in the
business of developing, constructing and operating thermal
and hydro-power projects. The company currently has five
thermal power projects under development, which will have a
combined installed capacity of 6,615MW by September 2013
and entails a total capital outlay of over Rs31,000 crore. All the
power generation capacity planned is coal based with 5,280MW
being supercritical. The company is presently also in the process
of evaluating the establishment of a 1,320MW coal-fired
thermal power project in Jharkhand and a 2,640MW coal-fired
thermal power project in Chhindwara, Madhya Pradesh.

Key positives
Wide portfolio of power generation projects
* IPL will have a combined installed capacity of 6,615MW
in Maharashtra and Chhattisgarh post the completion
of these projects with lot more projects in the evaluation
stage.
* The company has also signed memorandum of
understanding (MoU) for developing coal-fired thermal
power projects aggregating to 3,960MW with the state
governments of Jharkhand and Madhya Pradesh.
* The company has also signed a MoU with the government
of Arunachal Pradesh for developing four hydro-power
projects with an aggregate capacity of 167MW. These
hydroelectric projects are proposed to be run-of-theriver
projects.
* The company plans to sell its power to state-owned and
private distribution companies, and industrial
consumers. It intends to maintain an appropriate mix
of off-take arrangements, including long-term power
purchase agreements (PPAs), to provide a level of
committed revenues and short-term PPAs to realise
higher tariff rates.

Outlook and valuations
Currently IPL has no operational power plant. Its first power
plant is expected to be operational only by February 2012.
The three power projects aggregating 3,975MW are
relatively at advanced stages of implementation with coal
linkages/captive mines in place and boilers turbines
generators (BTG) equipment supply orders for two of these
projects has been placed with Chinese vendors. The other
two projects are still in quite initial stages of development.
Hence we believe that execution risk in this company is on
the higher side. All its future earnings are highly sensitive
to its ability to complete projects on time with all the
remaining coal linkages, procurement of equipment and
PPA agreements in place.
While comparing with other power utilities, IPL (post-issue)
looks attractively priced both in terms of price/book (P/B)
as well as market cap/MW basis. However we feel that
such discount given to IPL is justified given that its earnings
will start kicking in only from FY2013. Till then execution
risk remains high and cash flow remains negative. We feel
that the upside trigger in the stock in the short to medium
term would be achieving major milestones like financial
closures, tie-up for the equipment and awarding of ultra
mega power projects (UMPPs; as IPL has already expressed
its interest in bidding for future UMPPs). Though IPL is
priced better than some of the recent public offerings from
power utilities companies, the scope for the short-term
gain is limited.