The volatility in the market since last week is playing its part in the grey market too, where the Reliance Power is witnessing huge trading.

According to market players, the premium for RePL share in the grey market, which was trading in the range of Rs 410-425 a week back has dropped to Rs 350-360 on Friday.

Even the price for application worth Rs 1 lakh has come down from a high of Rs10000-10200 to Rs7000-7200 currently. This is despite the fact that investors are rushing to open demat accounts with brokerage houses and banks.

Market players say the recent volatility in the secondary market is suddenly raising doubts in investors’ minds about the valuations of the company.

The grey market price of Rs800-825 is giving a market capitalisation of around Rs1,80,000 crore to a company with no installed capacity and business on cards. The issue is opening on January 15, 2008 and is expected to list on the bourses in early February.

The current issue price warrants investors’ attention, as the company will be commencing its first project in FY09-10. Out of total project size of 28200 MW, which the company is expecting to complete by 2016, only 6000-6500 MW of power generation is expected to be commissioned by 2011-12.

According to analysts, even if the company is able to generate power worth 6000-6500 MW by 2011-12, it will have revenues of little over Rs7600 crore. This will give an earning per share of around Rs10, which will translate into a price earnings ratio of 80 on market price of Rs800.

But all these are assumptions, taking into consideration listing price as per grey market and company’s capability to earn revenues four years down the line.

This is far too in excess of current price earnings ratio of around 28 of the country’s largest power generator, NTPC, which already has generation capacity of close to 27000 Mw.

Source : Sify

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