A DISSERTATION REPORT

ON

“CRITICAL ANALYSIS OF RELIANCE POWER IPO FAILURE”

SUBMITTED BY

VARSHA SAMBHAJI PAYGUDE

(PRN 2051705796)

SUBMITTED TO

SAVITRIBAI PHULE PUNE UNIVERSITY

In the partial fulfillment of the requirements for the award of the degree of

MASTERS IN BUSINESS ADMINISTRATION (MBA)

Through

Progressive Education Society’s

MODERN COLLEGE OF ENGINEERING

MBA DEPARTMENT

1186A, Shivajinagar, Pune 411 005

BATCH 2017-19

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 ACKNOWLEDGEMENT

I would like to thank the faculty Ms. Supriya Lakhangaonkar for assisting me in doing this

project by giving specific and relevant guidance and giving certain clues for preparation of this

project and I would like to thank my friends for giving advice to do this project and for

providing certain information relevant for this topic.

Name: Varsha Paygude

Place: Pune

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 INDEX

Details Page No

EXECUTIVE SUMMARY 4-6

CHAPTER 1 – INTRODUCTION 7

CHAPTER 2 – LITERATURE REVIEW 8-12

CHAPTER 3 – RESEARCH METHODOLGY 13-15

CHAPTER 4 – DATA ANALYSIS 16-18

CHAPTER 5 – FINDINGS 19-20

CHAPTER 6 – CONCLUSION 21-22

BIBLIOGRAPHY 23

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 EXECUTIVE SUMMARY

The word IPO is very much often used in the issues of shares by the companies when they want
to go for public for the huge amount of investment into the purpose of the company for
achieving the desired objectives.

What is IPO?

Initial Public Offer (IPO) is one of the ways of raising capital for the companies which proposes
to expand their operations or they want to start a new venture. As this is the effective way of
getting funds from public for the first time for every company which wants to go public, that
company has to follow a certain set of guidelines which call as Disclosure and Investor
Protection (DIP) guidelines. And the process of coming to IPO has been very important for the
company, this project has been describing about the issue procedure along with the advantages
and disadvantages for coming to an IPO. For the better understanding of how the companies
have to raise funds, the analysis of some companies which recently came for an IPO and the
success of their IPO has been clearly explained. The main aim for undertaking this project is
to aware about how the companies come for an IPO route for raising funds to achieve the
proposed target. And another thing is the procedure to be followed by the company for the
raising of funds and how to work with all the parties involved in the IPO process, their duties
and responsibilities for the better results.

Why Go Public?

Going public raises cash, and usually a lot of it. Being publicly traded also opens many financial
doors:

 Because of the increased scrutiny, public companies can usually get better rates when
they issue debt.

 As long as there is market demand, a public company can always issue more stock.
Thus, mergers and acquisitions are easier to do because stock can be issued as part of
the deal.

 Trading in the open markets means liquidity. This makes it possible to implement things
like employee stock ownership plans, which help to attract top talent.

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Since an IPO is a significant milestone in the life of a company, it could have several
implications such as the following mentioned below:

Implications:

 It can be a source of finance if it is meant to finance a specified use.

 It creates a new ownership opportunity called the market window and a class of
investors called the ‘retail investors’.
 It can be liquidity event since it creates an exit route for the existing and future investors
of company
 It creates market capitalization for the company, which is the aggregate value of all its
issued shares as multiplied by the current market price.
 Being listed can open up the gates for hostile takeover attempts on the company
 It makes future acquisition of stakes in the company by the promoters quite expensive
and cumbersome.
 It brings with it additional costs of regulatory compliance, certain restrictions on future
capital transactions and cumbersome procedures.
 From the above implications, it is quite evident that an IPO can act as a double edged
sword. So in good times it enhances share holder wealth but in difficult times, listed
status can become a hindrance and a drag on the company’s performance and prospects.

The Company Overview:

Reliance Power Limited is a part of the Reliance Group, one of India’s largest business houses.
The group operates across multiple sectors,including telecommunications, financial services,
media and entertainment, infrastructure and energy. The energy sector companies
include Reliance Infrastructure and Reliance Power.
Reliance Power has been established to develop, construct and operate power projects both in
India as well as internationally. The Company on its own and through its subsidiaries has a
large portfolio of power generation capacity, both in operation as well as capacity under
development.
The power projects are going to be diverse in terms of geographic location, fuel type, fuel
source and off-take, and each project is planned to be strategically located near an available
fuel supply or load centre. The company has close to 6000 MW of operational power generation
assets. The projects under development include three coal-fired projects to be fueled by
reserves from captive mines and supplies from India and elsewhere; one gas-fired projects; and
twelve hydroelectric projects, six of them in Arunachal Pradesh, five in Himachal Pradesh and
one in Uttarakhand.

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Reliance Power's project portfolio also includes 3,960 MW Sasan Ultra Mega Power Project
(Madhya Pradesh). UMPPs are a significant part of the Indian government's initiative to
collaborate with power generation companies to set up 4,000 MW projects to ease the country’s
power deficit situation.
Reliance Power has also registered projects with the Clean Development Mechanism executive
board for issuance of Certified Emission Reduction (CER) certificates.

Study:

The title of this report is “Critical Analysis of Reliance Power IPO Failure” and the
same has been prepared on the available data and case studies.

This report is over-all study of

- Why did Reliance Power IPO failed?

- The reasons of failure

The conclusion, regarding this project is getting to know how the companies come for an IPO
with certain procedure and make them aware about the issues in an IPO.

Recommendations about this project are, every company whichever wants to go public for the
first time has to know what procedure has to be implemented and the success factors for
winning in an IPO.

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 CHAPTER 1: INTRODUCTION

Reliance Power Limited is part of the Reliance Anil Dhirubhai Ambani Group. Reliance
Infrastructure Limited, an Indian private sector power utility company and the Anil Dhirubhai
Ambani Group promote Reliance Power.

The company is the sole distributor of electricity to consumers in the suburbs of Mumbai. It
also runs power generation, transmission and distribution businesses in other parts
of Maharashtra, Goa and Andhra Pradesh.

The company was incorporated in January 1995 as Bawana Power Private Limited and changed
its name to Reliance Delhi Power Private Limited in February 1995. Its name was changed to
Reliance Energy Generation Limited in March 2004, and finally to Reliance Power Limited in
July 2007.

Anil Ambani owned Reliance Power Ltd’s mega initial public offer (IPO) was opened for
subscription on15th January to raise Rs 11,500 crore. The company proposed to issue 26 crore
equity shares of Rs. 10 each, including promoters’ contribution of 3.2 crore shares allotted at
the IPO price. The balance 22.8 crore equity shares constituted the net issue to the public.The
price band for the book building was Rs 405 to Rs 450 for every fully paid up share of Rs 10
each. The issue was managed by UBS, ABN AMRO, JPMorgan, Deutsche Bank, Enam
Securities, ICICI Securities, JM Financial,and Kotak Mahindra Capital. Macquarie and SBI
Capital Markets are co-managers.

This was the largest IPO ever. The previous largest was that of the real estate developer DLF
which raised Rs 9,187 crore in July 2007

Share Holding:

1. Anil Ambani 45%

2. Reliance Energy 45%
3. Others 10%

Company’s Power Projects:

 Ultra mega power projects

- Krishnapatnam Ultra Mega Power Project
- Sasan Ultra Mega Power Project

 Reliance and gas-based power projects

- Dadri Power Project
- Chitrangi Power Project
- Yamunanagar Power Project
- Rosa Power Project

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 CHAPTER 2: LITRATURE REVIEW

Fact:

During January 2008, the maiden public issue of Reliance Power Limited, India, was
oversubscribed 73 times and gathered global $190 billion. It created many world records. It
was the largest subscription of any IPO (initial public offering) anywhere in the history of
global capital markets with a record five million applicants. It became 10 top listed companies
in India with the largest number of shareholders in any listed company in the world.

The high growth Reliance Group companies are known for producing stock-market gains from
the moment they are listed. No issue since its inception in the year 1965 had failed to date in
the stock market. So the highly oversubscribed issue was strongly awaited to open on February
11, 2008 in the twin stock exchanges National Stock Exchange (NSE) and Bombay Stock
Exchange (BSE) of Mumbai, India.

But for the first time in history of Indian stock markets the Reliance magic did not work. For a
few moments on the opening day, Reliance Power rushed 19% to 538 rupees ($10.94) from the
IPO price of 450 rupees ($9.15). After the initial rush of four minutes the dream vanished and
RPL jumped to 355rupees ($7.23) per share never to return even close to the issue price. By
the close of the day, it was down 17% at 372.50 ($7.57) rupees, Four billion of its market
capitalization wiped out and with it billions of rupees of investors’ wealth.

The outcome:

In the following days, the terrifying worsened as another $5 billion of the market capitalization
was lost. The blow was severe and went far beyond Reliance Power. The listing affected all
the group companies of the Reliance Group.

As a face saving measure Reliance Power Ltd issued free bonus shares to all categories of
shareholders, excluding the promoter group (comprising of Reliance Energy Ltd and the ADA
Group), in the ratio of 3 shares for every 5 shares held. The proposed bonus offering resulted
in reduction of the cost of Reliance Power shares with an offer price of Rs. 269 ($5.47) per
share for retail investors, 40% lower than the IPO price of Rs. 430($8.74) and Rs. 281($5.71)
per share for other investors, and 37% lower than the IPO price of Rs. 450 ($9.15). REL
announced buyback of the shares to prevent the shares to slide further which didn’t happen
although. The performance of Reliance Power Ltd. after the IPO was good but not so excellent
to support this exorbitantly high IPO Pricing.

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Post mortem:

Several analysis and reasons were recognized to the Reliance Power disaster:

1) Reliance Power was a new company. It had almost no assets and cash flow. It was
riding on the Reliance brand name and also the euphoria in India's stock markets. This
was further aggravated through the exorbitant price quoted in the grey market before
the issue. The “Power On, India On" slogan created publicity and tried to portray over
dependence of India’s economic growth on Disaster of Reliance Power IPO – A Case
Study Dr. Biraj Kumar Mohanty Associate Professor ICFAI Business School,
Hyderabad Pradip Banerjee Faculty National Institute of Industrial Engineering
(NITIE), Mumbai.

2) Indian investor considers IPO as a means of making quick money. The shares are sold
out immediately on opening of the issue. This may be a reason of the Reliance Power
disaster.

3) The IPO was not helped by a souring in global market mood as the impacts of the US
subprime and credit crisis swept around the world. Between January 4, when the IPO
was announced, and the listing date of February 11, the benchmark Sensex index fell
over 4,000 points, or almost 20%, from historic highs of around 20,686 points to
16,630.91 points

4) It was observed that few Mauritius-based foreign institutional investors (FIIs) and a
domestic bank offloaded almost their entire shareholding in the company within
minutes of the opening bell.

Trading data indicated that as much as 23.77 million shares, 10.4% of the total 228
million shares sold through the Reliance Power IPO, changed hands on the twin bourses
of Mumbai (Bombay Stock Exchange and National Stock Exchange) within the first
four minutes. Sell orders were made at progressively declining prices. It was pointing
towards a pre-mediated manipulation in the dealings although an investigation by
Securities Exchange Board of India (the regulatory body of Indian Stock Market)
cleared the dealings as genuine.

5) Reliance Power's downfall was linked to aggressive pricing of the IPO. Analysts
suggested that it was overvalued when compared with peer companies in India. For
instance, the IPO price was 450 against the price of NTPC, (the government power
company) at Rs.250/-. RPL was planning a 28000 MW power plant in 2017 and did not
have a single operational power plant whereas NTPC had 27350 MW of operational
power plant in the year 2007. Comparison of the financials of Tata Power and NTPC
also did not show a very promising picture of RPL.

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 On the contrary, it was advocated that the retail investors may have been influenced by
the publicity, but that cannot be told about the Foreign Institutional Investors (who have
got all the expertise and knowhow of valuation of shares).

RESEARCH PAPERS:

 EP Energy (EPE), 2014

In a spate of energy-related IPOs struggling with valuation and failing to shore up investor
interest, EP Energy raised only $713 million of a forecasted $1 billion, leading to a 10% stock
drop and the worst first-day performance for a $500+ million IPO since 2009. Houston-based
EP Energy is just one of the players of the domestic energy crowd looking to tap into the IPO
market. Though advances in drilling technologies have boosted domestic energy production,
IPOs have struggled amid low natural gas prices. The Houston-based company is also
experiencing high levels of debt, contributing to its market failure. CHC Group, the world’s
largest commercial helicopter operator for the offshore oil and gas industry, also performed
poorly, pricing 41% below the midpoint of its range in a $310 million deal.

 Lombard Medical (EVAR), 2014

Originally planning to offer 3.6 million shares at a range of $15-$18 and then postponing their
IPO citing poor market conditions, Lombard Medical then planned for an April revival,
decreasing their deal size to 5 million shares opening at $11 for trading. IPO troubles continued
when their first day trading ended in a 9% price drop, closing $1 lower than expected. The
med-tech company has since incurred a 40% loss on total return. The UK-based medical device
company is known for their innovative endovascular stent-grafts which treat abdominal aortic
aneurysms, a $1.4 billion per annum expanding market. Lombard was one of the most
substantial ill-fated healthcare IPOs in a sector that saw the most 2014 IPO market activity.

 DLF, 2007

The over Rs 9,187.50 crore IPO had come at a time when the benchmark indices were headed
for what would soon be the all-time high levels for the Sensex and real estate stocks were
soaring like there is no tomorrow. While DLF attracted fewer, 3.5 times, bids (between June
11 and June 14, 2007), the stock shot up 36% in debut trade on July 5, 2007, before settling
about 8% higher on BSE. With its listing, DLF displaced Unitech BSE 0.76 % as the biggest
listed real estate developer at that time.

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A few months later, the listing made promoter KP Singh the second wealthiest Indian after
billionaire Mukesh Ambani. It terms of market capitalization, DLF had become the eighth most
valuable company on the listing day itself.

 ICICI Prudential Life Insurance, 2016

ICICI Prudential Life Insurance's Rs 6,057 crore IPO, the first public offering by an Indian
insurer, had hit the primary market in a price band of Rs 300-334 per share. The IPO ran
between September 19 and September 21. The scrip of insurer got listed at Rs 329 on BSE, a
1.5 per cent discount to its offer price of Rs 334. On NSE, the stock got listed at Rs 330 apiece.

It was the country's second biggest IPO in terms of size after the Coal India public issue. At
the issue price, the stock was valued at 3.4 times price-to-embedded value. At opening trade,
the market capitalisation (m-cap) of the insurer was at about Rs 48,000 crore, which had put it
in the list of top 50 firms in terms of market capitalisation on BSE.

 Some of the other biggest failures IPO in Year 2018:

Indian stock market has remained volatile in 2018 amid concerns of weakening rupee,
deteriorating current account and fiscal deficit, surging bond yields, rising interest rates and
expectations of a higher inflation. The volatility has severely affected the performance of IPOs
launched this year: The S&P BSE IPO Index has fallen nearly 14.7% between 1 Jan 2018 and
28 September 2018, compared to BSE Sensex that gained 7.1% during the same period.

Some 69 companies raised over Rs 27,900 crore through IPOs this year—80% of this money
was raised by just 10 companies. The share price performance of 47 (out of 69) regularly-traded
companies shows that 60% of them are trading below their issue prices.

Of the top 10 IPOs by issue size, only three companies are trading above their issue prices.
Bandhan Bank been the best performer, followed by HDFC Mutual Fund and Lemon Tree
Hotels. ICICI Securities, Indostar Capital and Hindustan Aeronautics have been the biggest
failures.

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Over Rs 4,700 cr of wealth destroyed

Source: ACE Equity.

Conclusion:

Sure, going public brings with it a flood of capital, but it can also expose a company to
unpredictable market forces, public scrutiny and unpredictable shareholders.

Additionally, if a company ambitiously inflates its valuation the results can be disastrous. A
failed IPO does not equate a failed company, just like a successful IPO is no guarantee of a
long run as a successful company.

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 CHAPTER 3: RESEARCH METHODLOGY

Objectives:

 To aware the intending investors about the procedure what has to be followed in the
issue of securities for public subscription.

 To provide them the guidelines which are to be followed by companies in an IPO

 To know the key terms and various stages in an IPO process.

 About the various parties involved along with the company for making an IPO.

 To look into the aspects of different companies which have come for an IPO recently
along with their respective strengths and weaknesses.

 To know how the shares are valued and the different methods of pricing them in an
IPO.

 To know the various parties involved in an IPO and their respective formalities to be
completed.

 To know the factors which can lead to success or failure of an IPO

Scope of the study:

In initial public offering (IPO), the companies have to look into the various aspects like what
guidelines it has to follow, the procedure for coming to public issue of shares for the
proposed objective. So the company has to fulfill various formalities and regulations
specified by the controller SEBI before coming to an IPO. Scope of this project is limited to
the guidelines and procedures for coming to an IPO along with the factors which leads to the
success or failure of an IPO of different companies. And the scope is limited to mentioned
companies which recently came for an IPO and their strengths and weaknesses for
succeeding in an IPO.

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  Reliance Power IPO Oversubscribed 73 times:

As per market expert’s expectation, Reliance Power Initial Pubic Offering has closed with 73
times overbooking as against the released shares on January 18 breaking over all records in the
Indian stock history as bourses informed media.

According to data information collected from National Stock Exchange and Bombay Stock
Exchange at here 7 pm on January 18, the concluding day of the IPO, ‘the trading operators
have cumulatively collected all time high 5.

1 million applications from the retail investors for the shares worth Rs. 1,88,000 ($47billion).
Qualified Institutional Buyers (QIBs) and High net worth investors (HNIs) have also submitted
the record-breaking applications that oversubscribed the allotted quota of both the institutes by
70-80 times and 200 times respectively.

The retail investor’s quota was subscribed by 15 times.

As per the estimated calculation, Anil Ambani backed Reliance Power Ltd has raised nearby
$180 billion (Rs.752000 crores) for its shares worth offered price of $2.9 billion (Rs.122
crores). The total collected price has been more than that of the combined market capitalization
of companies listed in Portugal and the Czech Republic as Bloomberg, a famous business
magazine said yesterday.

For making better comfort to retail investors, Reliance Anil Dhirubhai Ambani Group, ADAG
has provided two options to them, either they can submit the entire price (Rs.430) of the asking
lot or they can only deposit the one-quarter price (Rs.115) of the asking shares. The rest price
of the shares can be submitted after getting the allotment of the shares. Besides, R-Power has
also provided a subsidy of Rs.20 for each share of Reliance power IPO to the retailers.

Thus the retailer investors have submitted approximately Rs. 50000 crores collectively, which
is one-fourth of the total direct tax collections for last year.

Several public sector banks have also subscribed the offer joylessly tremendously. Punjab
National Bank, State Bank of India, Bank of India and Indian Overseas Bank put in bids worth
Rs 1,500-2,000 crore, as the sources reported.

Reliance Power had offered a total of 228-milion equity shares with face value of Rs.10 each
in the price band of Rs.405-450 for the public through 100% book-building process. It has
targeted to collect as much as Rs 11,700-crore from this offer, which has now gone beyond
Rs.75000-crore.

From this collected money, ADAG is planning to complete its 13 power projects across the
country and somewhere overseas in the next couple of years. The experts believe that the sale
of the shares of Reliance Power can make Anil Ambani the richest person of the country who
is still on the third position.

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Before this his Reliance Energy share has tripled his total asset by going quadruple in value
last year in the Indian stock market. According to Forbes, a famous business magazine, only
his elder brother Mukesh Ambani and Steel king Lakshmi Niwas Mittal are only ahead to Anil
by cementing his position on no.1 and no.2 simultaneously.

Before this K P Singh, the chairperson of DLF (a construction company) has offered the biggest
IPO offered that oversubscribed only three times as against 32.88 crore equity shares.

Mukesh Ambani backed Reliance Mukesh Dhirubhai Ambani group had also offered a gigantic
IPO offered for its subsidiary refinery company Reliance Petroleum Ltd. that had showed the
similar response to Reliance Power IPO and overbooked 52 times for 45-crore released shares.
Mukesh had collected Rs. 145,080 crore from this.

 Reliance Power to give 3 bonus shares for every five held Buy back:

A buyback is essentially a financial tool in the hands of the corporate that affords flexibility in
the capital structure.

A buyback allows the company to sustain a higher debt-equity ratio. It is also a tool to defend
against possible takeovers. Generally, companies buyback their shares when they observe their
own shares to be undervalued or when they have surplus cash for which there is no ready capital
investment need. Share buybacks also prevent dilution of earnings.

In other words, a buyback programme enhances the earnings per share, or conversely, it can
prevent an EPS reduction that may be caused by exercises of stock option grants, etc.
Last, but not the least, a buyback also serves as a substitute for dividend payments. This brings
us to the crucial issue of tax implications of a buyback. A very important consideration is
whether the amount paid on buyback is dividend or consideration for transfer of shares. If it is
indeed considered to be dividend, the same will not be taxable in the hands of the investors.
Also, to what extent, if at all, can the amount paid on buyback be taken as dividend? Is the
entire amount paid dividend or is it only the premium paid over the face value?

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 CHAPTER: 4 DATA ANALYSIS

Strengths:

 One of the largest potfolios of Power Generation Projects under Development in India.

 Portfolio of Power Projects that diverse in Geographic Location, Fuel-type, Fuel source
and off-take.

 Strategically Located Power Projects.

 Part of the Reliance ADA Group.

Projects handled by Reliance Power Limited:

 Rosa Phase I, a 600 MW coal-fired project in Uttar Pradesh scheduled to be

commissioned in March 2010.

 Rosa Phase II, a 600 MW expansion of Rosa Phase I which is scheduled to be

commissioned in September 2010.

 Butibori, a 300 MW coal-fired project scheduled to be commissioned in June 2010.

 Sasan 3,960MW UMPPs promoted and awarded by the Government of India is

expected to be the largest pithead coal-fired power project at a single location in
India,scheduled to be commissioned by April 2016.

 Shahapur, a 4,000 MW coal-fired(1,200 MW) and combined cycle gas-fired (2,800

MW) project in Shahapur, scheduled to be commissioned in March 2011.

 Urthing Sobla (400 MW), a run-of-the-river hydroelectric project, located on the

Daulinganga River in Uttarakhand scheduled to be commissioned in March 2014.

 Five other projects—the gas-fired Dadri project (7,480 MW), the coal-fired MP
Power project (3,960 MW) and three run-of-the-river hydroelectric projects, Siyom
(1,000 MW), Tato II (700 MW) and Kalai II (1,200 MW).

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Weaknesses:

Due to the nature of the business, Reliance power projects typically require a long gestation
period and substantial capital outlay before completion.

It may be months or years before positive cash flows can be generated. Further, power, property
development, and infrastructure and construction projects are capital intensive and will require
high levels of debt financing.

They will also lead to continuous reduction of equity. one should become long-term investors
with a two-three year view. There are no short term revenue generating opportunities in the
power sector now, he said. Investors can’t expect to make money in a month in the power
sector.

Features:

 In 2007 Power Sector topic was Hot

 Existing successful IPO “ NTPC and Power Grid”
 Reliance Anil Ambani Group found new company “Reliance Power”
 Reliance was already having “Reliance Energy”
 That time the company profit was only 16 lakhs

Analysis:

The Reliance Power issue of shares in IPO fund raising activity has been over subscribed by
73 times overall from the investors. And looking at the various aspects, which are previously
discussed are applied in this IPO process and the post-IPO performance is also good. And the
strengths and weaknesses are also mentioned which form a part of success for the company.
Apart from the compliance of issue procedure and the documentation part, the success of an
IPO is depends on the financial prospects of the company for the last 3 years.
It is because of the strengths which the company has got and good financial record the company
maintained.
Regarding the pricing of share value, it has used the past EPS and other considerations like its
business and development.
To conclude about this case, it has maintained good financial track record and fair valuation of
share price along with the timing of coming for an IPO

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Trading Day 11th February 2008

1. Issue Price - 450/-

2. Open Price - 547/-

3. Low - 355/-

4. Closed - 372/-

5. One Day return - -17.50%

Reliance Power debuted on the stock markets on 11 February 2008. However, the markets were
still reeling after the January 2008 stock market volatility and concerns over speculation that
the issue was overpriced sent the stock plummeting soon after its listing. At the end of the day,
the stock traded at a value that was 17 per cent lower than its issue price of Rs. 450 . Investors
who were betting on the stock reaching 1.5 or even twice its issue price lost a fortune in the
process. On 25 February, in an effort to mitigate investor losses, Reliance Power decided to
issue 3 bonus shares for every 5 shares held.

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 CHAPTER: 5 FINDINGS

 It was heavily hyped up. It was oversubscribed by over 73 times and people
were crazy about that stock

 It was overpriced. A company like NTPC that has an existing power production
capacity of 20,000 KW is being traded at Rs. 200/- and a new company that is
proposing a 25,000 KW power production after 3 years is being offered at Rs.
450/- on an IPO

 Everyone wanted to make a quick buck. People thought that Reliance power
would touch Rs. 800/- on the day of listing and keep going higher and they can
sell it to make a heavy profit.

 The basic logic of the stock market was missed. If everyone wants to sell their
shares - a stock price always goes down

 The reason for over subscription of Reliance Power IPO basically,

Infrastructure especially power was considered by investors as the key area to
invest in as it was a sector all set to develop. Investor faith in the company was
also proved by its historic over-subscription.

Why did this happen?

1. Reliance Power was a new company. It had almost no assets and no cash flow. It was
riding on the Reliance brand name and also the euphoria in India's stock markets.
There was no past performance nor healthy profit.

2. Only advertisement “Powering India”

3. Most of the investors offload their shares on the listing day for a premium.

4. The IPO was overshadowed by the 07–08 Subprime financial crisis in the US.
Between Jan 4 when the IPO was announced and Feb 11 when the IPO listed Sensex
fell 4000 points , so the investor mood was bearish

5. It was a cheeti (ant) compared to other listed power companies

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 Reliance Power: Issue Highlights

Issue Highlights
Sector Diversified
Sector TTM P/E Not applicable
Issue open / Close 15-01-2008 to 18-01-2008
No of fresh shares issue 26 crore
Face Vale 10/-
Price Price Rs 400 – Rs 450
Subscribe 73 times
Listing BSE, NSE
CM Rating 50/100
Amount Raised 11,563 Cr
Bid Received 7 lakh Cr

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 CHAPER 6: CONCLUSION

The procedural aspects regarding the opening of an IPO for a company which wants to come
for public by offering shares to public for the first time. So every company has to follow certain
guidelines before coming to public and it has to fulfill the DIP guidelines specified by the SEBI
for the investor protection, who want to invest in the company.

The main points which conclude the IPO are as follows:

1. Every company planning to come for IPO has to comply with all the above mentioned
procedure.

2. IPO is one of the forms of raising the capital and which is the effective one though it
has defects.

3. As the price factor plays major role along with the time of the issue, every company
must specify the proper pricing strategy for the shares.

4. Merchant banker also plays a significant role in an IPO process by operating the IPO
and looking into various aspects.

5. In order to succeed in the fund raising through IPO route one has to be through with
DIP guidelines.

6. As the investor protection is important, the company has to ensure investors by offering
good prospects in the prospectus.

7. Before coming to an IPO every company has to have a good track record of financial
performance.

8. SEBI is the regulator for all IPO’s it has to ensure its due diligence in issue of shares.

9. The utilization of the funds from IPO is significant and as per the objective mentioned
in prospectus.

10. Listing is important for the company on the stock exchange, so it has to be done with
proper pricing.

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Lesson from Reliance Power IPO:

1. Brand name is not enough

2. Is bull market not eternal, it’s not always continuous
3. Keep an eye on valuations, if it is overvalued think on it
4. Sunrise sectors – Influence of hot sectors
5. Beaten-down stocks

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 BLIOGRAPHY

Sites visited

https://en.wikipedia.org/wiki/Reliance_Power
https://www.reliancepower.co.in/web/reliance-power
www.sebi.gov.in
www.moneycontrol.com
www.investopedia.com
www.reliancemoney.com
http://www.icmai.in/case-study/2014/Debacle-of-Reliance.pdf
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=656542
https://economictimes.indiatimes.com/wealth/invest/7-of-10-biggest-ipos-of-2018-in-
losses/articleshow/66003614.cms

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