Reliance Power

Price Band: 405-450 (QIB) and 385-430 (Retail Investors)
Dates: 15th – 18 Jan
No of Shares: 28 million equity shares

Pros
1) Reliance has always proved to be a goldmine for the investors and in the long run, always delivered superior returns. Hence its definitely a buy.
2) Retail Investors will get shares alloted at a 20/- Discount (4.6%) as compared to QIB.
3) Retail investors have an option to pay only 115/- (about 1/4) of the application money upfront.
4) Gray market premium for every such application is 7800/- (per Lakh)
5) The company has 13 ongoing projects that the company is developing have a combined planned installed capacity of 28,200MW. (largest in the country)

So it would be advisable for retail investors to apply for 225 shares, which has a bid value of Rs.96,750 (and an upfront payment of 25875)

Concerns:
Livemint has analyzed the prospectus and raised some valid points.
The company has no trackrecord, no revenue generation operations as of now. Even if everything goes as per target, the first plant would be operational by December 2009, and the last of the proposed plant would be commissioned in 2016. So all the hype is based on the future performance and how efficiently Anil can implement the project. However the present track record does not seem very encouraging.
1) The 300MW Butibori project is already behind schedule and the government, while giving an earlier extension, had said it wouldn’t allow any further extensions.
2) The memorandum of understanding (MoU) for the 1,200MW Shahapur project expired last April.
3) The company has requested for an extension of the deadline for the submission of the project implementation schedule for the 3,960MW coal-fired Madhya Pradesh power project.

Contrarian Approach:
Fundamentals does not seem to be the only factor around this issue. Also, because of the sheer size of the issue and prevailing volatility, there is a slight chance that the issue might get less than 160,000 retail applications. In that event, Reliance Power will be oversubscribed less than 4 times and will have to issue partially paid shares. And for the first 30 days you will be amongst those fortunate few who will actually be holding tradable shares.
So watch out for this trend. If this seems to happen, then I would recommend you to pay not the min 115/- per share, but the full 430/-.
This strategy would really pay off if you have multiple accounts (through spouse/family). So you could apply for few partially paid shares and few fully paid shares and get the best of both the worlds.