Retail investors’ response to initial public offers (IPOs) from the power sector have been tepid. The Adani Power IPO, subscribed 21.64 times in all, was subscribed 2.97 times by retail investors. Indiabulls Power was subscribed 21.84 times overall, but only 1.09 times by retail investors. JSW Energy saw retail investors place bids for 32.7 million shares of the 81 million reserved for them.
Analysts believe the power sector has immense potential and is a good sector to stay put, as these projects have a long gestation period. Unattractive valuation of the recent IPOs is the reason, they say, for their lukewarm reception from retail investors. Some of these companies “were trying to sell dreams through their IPOs, when they lacked the capacity to fulfill those promises”, said an analyst. Experts say most of those who did invest in these IPOs weren’t the ones who were in it for the long term; they wanted quick returns, but ignored fundamentals and would end by burning their fingers.
Experts are also cautious about the future: “The new IPOs will see a very moderate response from retail investors,” said Ajay Parmar, head, institutional research, Emkay Global Financial Services.
S P Tulsian of sptulsian.com said: “Investors with a horizon of two or more than two years, can look at the power sector IPOs.” Analysts say retail investors do not want to stay put for long. They want to book profits instantly and shift to some other stock. “And, the recent IPOs have hardly rewarded the retail investor,” added Tulsian.
Industry experts say retail participation is seen to be driven by trend, sentiment and not fundamentals. “If retail investors had enjoyed good profits with the previous offerings, they would buy the upcoming offer, too,” said Parmar. Also, the valuations and number of shares on offer are still not known for future IPOs like Jindal Power and Satluj Vidyut Nigam.
Analysts are also concerned about the operational capabilities of many of the players entering the sector. “After the Reliance Power fiasco, everybody has learnt a lesson of not trusting companies with even a good brand name,” said one.
Even in the case of follow-on-public offers (FPOs) from National Thermal Power Corporation (NTPC) and Rural Electrification Corporation (REC), analysts do not expect fireworks. In the past, PSU IPOs like NHPC have disappointed, say experts.
Hitesh Agrawal, head-research, Angel Broking, said: “NTPC valuations are not very attractive. Even in the secondary market, we do not recommend NTPC. But, if one wants to accumulate, NTPC can be a good bet.”
Experts say if government gives a 5-10 per cent discount, retail investors could look at the NTPC FPO. “Rs 200-190 levels would be decent to enter NTPC, because it is not very aggressive and there isn’t anything big expected from the company,” added Agrawal. But, Experts are not bullish about Rural Electrification Corporation (REC): “REC has been hyped, it is highly overvalued,” said Tulsian. The basis for the FPO pricing was the secondary market and these prices were not realistic, he added.
Experts say in the current market condition, banking and infrastructure sectors were looking much better than power. “Though power is a small part of infrastructure, India has a huge infrastructure deficit in terms of roads, highways and bridges. And, there will be a lot of investment coming into road and highway projects,” said Agrawal. Analysts are selectively bullish on pharmaceuticals and automobiles, too.
“So, when one has many other options, why go for the power sector, which involves lot more risk,” said Agrawal. Retail investors need to understand the business model of power companies before investing, say experts. Investors also need to understand the profile of the individual companies and projects when investing in power companies. These companies generate a return on equity (RoE) between 12 per cent and 14 per cent, say industry experts.
