>Indiabulls Power IPO- A Risky Investment ? (NOBLE)

Although IBP looks cheap on the face of it, we can’t spot near term valuation upside.
Following the disappointing post-IPO performances of two richly valued Power stocks - Adani Power and NHPC – it is refreshing to see Indiabulls Power (IBP) price its IPO at a discount of 25-30% to other private sector developers of similar profiles (based on Mcap/Total MW). That being said, this discount makes sense since:

(a) IBP has no operational capacity as yet; (b) first commissioning is likely only in FY12; and (c) there is a likelihood of further equity raising over the next two years. Uncertainty on the PPA for the

Amaravati phase 1 power plant (pricing is still not known) & the Nashik power plant (PPA is still not signed) and doubts about the commerciality of the Bhaiyathan plant (65% of offtake has been signed at Rs 0.81 per Kwh vs the prevailing long term PPA of Rs 2.6-2.9 per unit) pose further concerns. As a result, although IBP looks cheap on the face of it, in light of these issues, even at the lower end of the price band, we can’t spot near term valuation upside.

HOWEVER, THE IPO RAISES A NUMBER OF QUESTIONS....

a) Why did IBP give the entire order to Chinese vendors given the short history associated with Chinese equipment in India?

b) Was the selection of vendors based on a global tender? If yes, who were the other vendors participating in the tender process?

c) Our primary data suggests that the average life of the Chinese equipment ranges from 7-10 years? Given the fact that IBP has signed PPAs up to 25 years, is there a provision made by IBP in case the equipment undergoes a replacement cycle?

To see full report: INDIABULLS POWER IPO