Investors in Power Stocks like Reliance Power and Adani Power Blasted Twice Over !

The Sad Reality is that Investors in Power  Generation Stocks,particularly Reliance Power and Adani Power have just been Blasted twice over

~ on one hand,a macro risk beyond their control,  they are seeing their Electricity Bills zoom without actual increase in number of Units consumed as Power Prices hit the roof 

&

~on the other hand, a micro risk they could have avoided,they are seeing their Investments in these Power Stocks going “Poof” as they have eroded dangerously in value

What Happened to India’s Power Industry that was the darling just a few years ago ! and saw the likes of Reliance Power (RPL) and Adani Power (APL) shamelessly exploit Investors with hugely  out priced and obscene Big Ticket IPOs !?~ RPL asked us for Rs 450 per share and APL for Rs 100 a share ~ and we suckers gave it to them ! while Promoters actually subscribed to nearly all their controlling stake at par Value of just Rs 10 ! ~ Today we cry for being suckered seeing RPL sink to Rs 88 and APL to Rs 42 ! 

The Power Sector Woes lie in the huge spiralling  cost of Imported  Thermal Coal  from Indonesia.In October 2011  Indonesia actually ripped the Indian Power Industry apart by changing it’s Coal pricing Method and aligning prices to international levels and  significantly imposing Coal Exports Restrictions and Increasing Royalties on Coal Mining and Taxes on Coal Exports and in fact even announcing banning Exports by 2014

Thermal Coal Feed Power Plants are simply unviable now if Power Prices continue to be regulated heavily and full costs are not passed on to the Consumer~ However despite Regulation,Inevitably Electricity is going to cost More and More

In July and August 2009 I had blogged comprehensively on the Adani Power (APL) IPO at Rs 100 after thoroughly reviewing it’s Prospectus  ~ It had entered into 15 year Coal Supply Contract at even then a low US $ 36/t with its parent Adani Enterprise (AEL) ~ AEL in turn was to import the Coal from it’s Bunyi Mines in Indonesia ~ The Price of Coal has shot up nearly  three times from this level of the contracted US $ 36 to levels of US $ 100 ~ in 2010 APL was introduced into F & O and was Rs 125 then ~ Today it has sunk to a low of  Rs 42 (FV Rs 10)

Adani Power Struggles on Listing today…saves face by closing at Issue price of Rs 100

Thursday, August 20th, 2009

Saturday, July 25th, 2009

 

APL had stated Coal Supply from AEL as a Risk Factor in the Prospectus ~ it has played up as the major risk factor ~ in fact it’s become a survival factor for APL ~ I had commented in my above 2009 blogs and responses to them on this risk voicing a suspicion that the contracted US $ 36 was a low price even at the time for coal

 

Reliance Power IPO too was at Rs 450,adjusted after bonus to Rs 281 ~ Retail Investors were offered a 5% discounted lollipop ~ Today it’s dropped to Rs 88 with the company indicted in the new CAG Report tabled today and also now conceding that it will simply not be able to achieve Mega Watt targets spelled out in the Prospectus  

 

In May 2009 I had blogged on RPL advising all to exit at a loss even at Rs 179 then

Reliance Power at Rs 179 ! Yeh kahaa aa gaye hum !

Wednesday, May 27th, 2009

It had boasted it would do 18000 MW Generation by 2015 ~ Now it says it can at best do only 8960 MW by 2015 ! ~ it’s excuse is that it has been unable to close out successfully coal supply feed contracts

 

Check this Report from yesterday,Aug 15,2012 DNA

….and today the CAG Report has been tabled in Parliament and submits that the Government lost Rs 1.86 lakh crores due to lack of competitive bidding for Coal as Private Companies benefited by this Amount by getting  Coal Blocks on Nomination ~ Reliance Power benefited by Rs 29033 crs says the CAG Report
A huge costly lesson learned by Investors who have literally and figuratively paid a High Price for this~ You don’t pay a High Price even for a Good Stock !  ~ and certainly never for a Bad Stock !
Now you’ll go figure out whether Foolishness or Faith did you’ll in, in  RPL and APL !  ~ and God Help you’ll if you’ll continue to listen to those Stock Channel Experts on this ~ you’ll get further powdered not powered ! 

7 thoughts on “Investors in Power Stocks like Reliance Power and Adani Power Blasted Twice Over !

  1. Promoter greed is global concept. Ambani brothers, Future group, Adani …….. many more to be added in india, so as Mr. Zuckerberg.

    The sad thing is the people who loose out in this race is retail which unfortunately burn their hands and hard earned, well taxed money 🙁 . The only people to blame here are they themselves as people need to study first before putting their money at stake. Even if people learn from their first mistake, they can still be bery good.

    Though it also means that these promoters, atleast imo will not be able to raise any money atleast in the short term. I dont think Anil A stands to show up in stock market , future group did an IPO at face value , that too even didnt stood up . so after the loot, it seemed like payback time for the Karma .

  2. This is not just promoters’ greed but of the entire ‘market professionals’ community.

    Where are ENAM guys, Kotak, ICICI, JM Financial, UBS, ABN Amro, Deutsche Bank, JP Morgan (all lead managers of Reliance Power IPO who were touting).

    Among those ENAM and Kotak probably the major culprits. How do we punish them?

  3. Chris ~ You are absolutely right ! ~ In fact Merchant Bankers are Wolves that Run in a Pack ~ I’ve commented as such in the Adani Power blog post link of July 25,2009 that I have provided on this post ~ also check out the RPL Links of past blogs and you will get as sense of my frustration too and even a degree of helplessness ~ I was in a candid conversation with a top SEBI Official arguing with him that they were missing the wood for the trees in announcing measures for attracting small investors back to markets ~he revealed that the turning point in our Capital Markets was this obscene price IPO of RPL in 2008 ~ it has killed retail and small investors ~ the hype overload led by the aggressive and bullying marketing and promotion of RPL by the merchant bankers should have been nipped in the bud ~ I view this as a deliberate effort to mislead and misinform prospective and gullible investors ~ the nexus of Leading Merchant Bankers,Media Channels,Broker Cartels with the Ministries,Exchanges and Regulatory Authorities and the misselling by Mutual Funds is not a healthy environment for market sanctity and credibility and confidence ~ those who perpetrated this situation are now offering solutions ! ~ I’m aghast how they have all brazenly got away ~ they now don’t have any small investors who they can make suckers again and so are trying to seduce them back !

  4. Gaurav, Thanks for lending your shoulders to cry on! (even though I did NOT invest in Reliance Power).

    I can’t express how depressed I was when I read Reliance Power IPO prospectus and even more depressed for weeks when I saw all these gang of merchant bankers touting Ambani.

    Thanks again. Keep up the good work.

  5. Dear Srikanth ~It’s purely the US $ 11 Billion FII routed inflow till date in 2012 that’s keeping our Markets bouncing in hope ~ to me,the macros yet indicate downside ~ so I would not enter yet ~both were on my buy list a year or two ago with Jubilant Ind even doubling before simply collapsing as Balance Sheet Dynamics got loaded with Debt while IDBI buckled under while tackling a tightening Economy ~ these are not compelling buys with such Dynamics currently

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