What's Next For RELIANCE Group ( After Declaration Of Rpower )

Hi All,

When everyone is out to ridicule Anil Ambani, he sprung a surprise by announcing a BONUS (whatever might be the ratio, it sure is an Investor friendly move and unprecedented in Indian Capital Market History), I think going forward things can get only better and better.

A person like Anil Ambani is now under more pressure to prove that the huge shareholder base who had reposed great faith are rewarded with a jump in share price and that too....FAST! Here are 5 more TRIGGERS and also 5 common Doubts most Investors have in their minds with regard to Reliance Power...

TRIGGERS:
1) FIRST TRIGGER: would be the Tilaiya Ultra MEGA POWER PROJECT (UMPP).

This is the 4th UMPP coming up after TATA (1) & Anil Ambani (2 - A)at Sasan,B) Krishnapatnam) won the 3 UMPPs floated till date. Reliance Power is also in the race for this project and the momentum would pick up as the dates for the winner approach.

MARK TWO DATES IN YOUR CALENDAR >>> A) MARCH 23, 2008 & B) JUNE 23, 2008.

The first date is for the RFP & the latter is for the winner announcement date for Tilaiya UMPP at Jharkhand.
http://www.livemint.com/2008/01/23234148/11-bids-shortlisted-for-Tilaiy.html

2) SECOND TRIGGER: Good news for RNRL would rub off on Rel Power. How? See this...
http://www.thehindubusinessline.com/2008/01/08/stories/2008010852550300.htm

3) THIRD TRIGGER: Rel Power's plan to make a MAJOR FORAY into manufacturing of power equipment announcement in co-operation with a global major TO BE ANNOUNCED IN THE NEXT 2-3 MONTHS...
http://www.freshnews.in/reliance-to-manufacture-power-equipment-20037

4) FOURTH TRIGGER: Resolution of the supply agreements with MA on the fuel supplies. RNRL has filed a court case and Mukesh Ambani might be looking at faster resolution of this as:

a) The Gas pipelines are getting ready from the KG basin by July-OCT 2008 from Kakinada in AP.
b) RIL can't sell the Gas to other suppliers or enter into agreements with third parties until the case is resolved as instructed by the court.

5) FIFTH TRIGGER: Rel Power has massive investments lined up for U.P. in thermal power generation and also the NEW HYDEL POWER (HYDRO) policy would boost it as it had lined up few projects in this sector.

Source: REL Power prospectus


Now for People who have DOUBTS LIKE...

1) Aren't there MANY Ifs & BUTS in the execution of Power Projects ?
Each UMPP needs around 16k cr. It takes 5 years to build, needs 35,000 laborers during construction and 500 employees to run after completion and require 12-14-Million-Metric-Tonnes of Imported coal annually. Rel Power might finally end up having projects worth 1,00,000 cr (20-25,000 MW) on hand by end 2008.

Anil Ambani group had already shown their exectution mettle in the Telecom sector with their Pan-India foray in the Telecom Tower business and their penetration to even the remotest villages in India.

2) Where Does Rel Power Get all the FURTHER FUNDS Needed?
Rel Power has 3 options they might be looking at...
1) Higher Debt: Equity Ratio, so Debt component might be higher than the conventional projects.
2) PE with lock in for 4-5 years (Rel Power might also come out with a VERY ATTRACTIVE RIGHTS ISSUE DOWN THE LINE ONCE THE MINIMUM stipulated waiting period after coming out with an IPO is over)
3) Foreign Power partners contributing financial Capital in few of the JVs or take Direct Equity in Reliance Power

3) WHAT ABOUT Return-On-Investment (ROI)?
ROIs would be in the range of 15-20% and not as lucrative as found in the IT Industry (for that matter aren't most infrastructure projects like roads, power, aviation, toll bridges etc. having Breakevens of 5-15 years after completion due to 15-20% ROI on their projects. The Infrastructure status gives them SOFT loans, Govt Subsidies, Cutoms Duty exemptions on equipments.

4) What if COAL PRICES ZOOM?
I am sure you would have heard of CONTINGENCY ANALYSIS & SENSITIVITY ANALYSIS. For projects of this scale, these 2 are a must. For this reason, they are planning to BUY OUT mines in Australia, Indonesia, Malaysia, &/or S. Africa. The TATA group had already done just that.

Without assured supplies, all the calculations of meeting the BID price of UMPPs won at Sasan (Rs.1.19 per unit) & Krishnapatnam (Rs.2.33/unit) are useless and AA had already stated that they have shortlisted some firms and due diligence is on. Coal supplies can be streamlined by....
A) Buying out mines
B) entering into long-term contracts with suppliers with price lock-ins
C) take minority stakes in listed firms in COAL mining companies abroad so as to get bargaining advantage.
D) Opt for Projects close to PORTS so that not much cost is involved in transportation. In the CASE OF SASAN (M.P.), Govt. had given the coal mines for AA group and it needn't run for supplies anywhere. For Krishnapatnam, it will soon be acquiring mines and that news WOULD BE A TRIGGER.

5) All this is a BUBBLE/MEDIA-HYPE/ FROTH?
For patient Investors (NOT SPECULATORS), REL POWER scrip over the next 6-12 MONTHS might offer more than 50% returns. So, one may expect Rel Power to appreciate, before February 2009, anywhere between Rs.550-650.

Let us not worry over Short-term falls and/or get influenced by emotional outbursts on this scrip.