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Reliance Power Parks (Some?) Money In Reliance Mutual Funds

From Moneycontrol: (Hat tip: Samarth)

Reliance Power Ltd, which raised Rs 11,562 crore in its IPO in January last, has temporarily parked almost the entire money in mutual funds. The 2007-08 financial results declared by the company on Monday show that Rs 11,412.81 crore is invested in mutual funds. The company has not disclosed either the funds or the schemes where the money has been invested.

The IPO offer document says that the company “intends to invest the funds from the issue in interest bearing liquid instruments including deposits with banks and investments in mutual funds. These investments may include investments in mutual funds managed or financial products sold by one of our affiliates, RCL (Reliance Capital)”

The company has spent only Rs 25.83 crore as of March 31, 2008 in construction and development of its various projects.

The temporary parking of the IPO money in mutual funds has helped the company report a net profit of Rs 94.6 crore for 2007-08. Total income for year stands at Rs 132.8 crore, of which dividend income is Rs 112.7 crore.

Reliance capital benefits from Reliance Power’s parking of funds, surely – they’re just crossed an AUM of 100,000 cr. and this sorta helps, I guess.

And now, without using ANY money they can get around 900 to 1000 cr. in “dividend income” – nearly 9% of the collected money – as practically risk free money. If they don’t spend a lot that indicates a huge part of it as profit – heck, they could grow revenues and profit 8 times (800% growth) without moving a finger!

Well, this makes no sense fundamentally of course, but things will change as we move on – surely they will deploy this money into projects and those should get you a much better profit than the risk-free return. Still, the share issuance is very large – nearly 236 cr. shares are out there, and some more with the bonus issue. So it’s all going to be about how they churn out profit. At current prices of 400+, they need to make profits of some 10,000 cr. within five years to get a good return. That will be something to see.

Disclosure: No positions.

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