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SP Tulsian of sptulsian.com SP Tulsian of sptulsian.com said Reliance Power could hover between Rs 230-270 in the next 3-6 months. He added that the adjustment of shares will happen in the same way as it happens for any other bonus.

Excerpts from CNBC-TV18’s exclusive interview with SP Tulsian:

Q: Does it surprise you that Reliance Power is trading at Rs 245?

A: It is not surprising at all. The only surprising part is that there has been some confusion. Certain analysts are divided with the opinion that it will get listed at around Rs 380 or Rs 390. That is mainly on the premise that the adjustment for the ex-bonus will happen on the market cap criteria since the bonus is only being given to the non-promoter.

We have been categorically maintaining that the adjustment will happen with respect to the shares in the same way as it happens for any other bonus. It is for the simple reason that only the non-promoted shares are presently traded on the stock exchange. Though the entire share capital is listed on the stock exchange but the entire promoter holding is locked in.

So, any adjustment has to take place the way it has been happening in any other bonus. It was very clear from our side that the ex-bonus price would be anywhere around Rs 260 and the adjustment cannot take place on the basis of the market capitalization criteria.

Q: While the adjustment is done, it is more difficult to put some market cap or valuation to the stock. What kind range do you see the stock holding because the actual bonus shares come in about 30 days down the line?

A: That is right because no bonus shares would get credited on or before June 30 because you need to have the listing permission from the exchanges for the new issues. Only after that can the shares come to the respective Demat account of the investors.

Coming on the valuation part, some 1,500 mw to 2,000 mw of the power project would be operational in the next three years or so.

If you take a broad call and consider 30,000 mw capacity, the present market cap of the company is around Rs 60,000 crore. They will be leveraging their balance sheet to the extent of Rs 1,00,000 crore as debt to create the entire capacity of 30,000 mw.

So, if I take a call four years down the line on the position of the company, my enterprise value works out to Rs 1,60,000 crore, which is justifying the capacity of 30,000 mw which gets added.

If I take a broader call mainly on the power generation capacity, which is getting created by the company, the present market capitalization of Rs 60,000 crore seems reasonable. It will not get too much swing on either side.

So, if one wants to take a range for the next 3-6 months or so and if I do not factor in any other positive or negative developments into the stock, it could hover between Rs 230-260 or maybe Rs 240-270 with a mean or median price of Rs 250.

Q: What about the technicals of the stock, in terms of demand-supply for people who bought ahead of the ex-event? Do you think most of them would have liquidated? Do you expect any fresh supply of this stock coming in from traders who were trying to do a bit of an arbitrage?

A: If you see the share-holding pattern, at the time of the allotment and when we got the share holding of the company as of March 31, practically all the top guys or institutional investors have all exited from the stock. There has been a reduction in the retail category by about 1.5 lakh to 2 lakh. Earlier, it was said that probably 4-5 lakh investors have got out of the stock. It may have happened that 4-5 lakh original allotting may have sold the stock but new retail investors have also entered into.

Now, the share is well distributed among the 40 lakh investors. In the next six months or so, there will not be any appetite from the institutional investors because there is no point in having such a long gestation when you have a similar stock available in the sector.

So, the appetite purely of a trading nature could be more from the retail investors as they will keep entering and exiting with a view to have trading on the stock in a price range of Rs 20 to Rs 30. So, this could be the investor’s attitude towards the stock in the next 3-6 months.

Q: What would you do if you got the stock from the IPO. You held expecting to see a bounce once it goes ex-bonus, which hasn’t happened. Would you sell it at Rs 250 or would you hold on?

A: We have been advising whoever has got their allotment if they are getting their cost price, which is Rs 430 in case of retail category and Rs 450 in case of the other investors. At some point of time, they have been getting that price. But now, the share is effectively working at around Rs 400 to Rs 410.

So, if somebody gets a price of maybe Rs 430 or Rs 440 that is the right level to exit. I am factoring the bonus value also. So, that means on ex-bonus, it is advised to exit from the stock at around Rs 270-275.

One could again re-enter into the stock if it is available at Rs 230 because you have got a tight range of Rs 230 to Rs 270. At Rs 230, one could safely buy and at Rs 270 one could safely exit because of movement beyond these two limits.

Q: IFCI seems to be opening the bids once again and that is the deduction they seem to be working towards. How will it work out this time? What would you do with this stock?

A: If you see the earlier bid, I do not think that was attractive because there has been too many confusions. At that time, the conversion of the shares had not happened when the bid was invited. The employee strength was 450 at that time which has now been rationalized and reduced to about 250. There was no clarity in regard to the grant which was to be received by IFCI from the government. In this accounting, they have written off that grant that it will not be available from the government of about Rs 400 crore.

So, a lot of rationalization happened in IFCI and that will definitely be attractive to any prospective bidder. Earlier also, we have seen 8 bids for IFCI but thereafter 7 of them withdrew. Now, it has become very attractive.

My earlier call was that it has a fair valuation of about Rs 75 or Rs 80. But if I take all these rationalizations, this improves the valuation and this would attract bidding by more people.

On a fundamental basis, one could take a fair valuation at around Rs 90 now hereon. So, taking the controlling premium element, there too the bidding could be anywhere at Rs 100 plus. Even at the earlier bid of Rs 110, I found that to be a bit aggressive. But I do not know the desperation on the part of a prospective bidder. If I take a fundamental valuation call, it is about Rs 85 to Rs 90. You need to add a controlling premium of about 20% there. That could be the fair valuation when the bidding will come.

Source: Moneycontrol.com