Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Stocks

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.

  • hari says:

    >deepak,

    After a long time I got some shares allotted in the IPO (Rel Power). This is the the only share apart from a couple of small caps that are in red in my portfolio. Just waiting for the Bonus issue and then I might consider selling.
    Based on this article I think RelCap is a good choice. I always knew that asset gernering is never difficult if you have the reliance badge.

    Regards
    hari

  • Nilesh says:

    >”they could grow revenues and profit 8 times (800% growth) without moving a finger” – sir, this is accounting gimmick/mistake on your part.

    the reported profit (94.6 crore) for last year is practically for just about 3 months. so you can not compar this year (07/08) results with next year results (08-09).

    if they also use it in their next years results (or financial/press statements), I would term it as open cheating on their part.

  • Deepak Shenoy says:

    >nilesh: Nope, these are annual results (RPower as a company existed much before the IPO, as per the offer document)

    Check this link.

    What I mean to say is that in this case, EPS growth makes no sense and you are right, results are not comparable.

  • Anonymous says:

    >At this rate you really don’t need to have brick and mortar businesses to build wealth, do you Deepak? Park cash in own MF and then ask them to buy RPower shares and then some more. You can’t call this insider trading either since they are making *** of you in full public view. I think for people who have any iota of wisdom, they should flee from this counter right NOW. And how much more upside are you giving to this current rally? You’ve been bearish for a while and for good reason.

  • Deepak Shenoy says:

    >anon: It’s a tough call. At the same time they’ve gone and bought some 3 coal mines in indonesia for their TN UMPP, so news flow is good. I don’t think there is value there for a long term investor, but a short term trader has many opportunities on the stock (in fact now, it’s showing signs of an imminent breakout, but can’t say which direction)

    Upside wise: Given that this is a tech rally and a bear market pullback, one can never say. Most people say Nifty 5400 using weird things like Fibonacci numbers. I would not be surprised to see much higher.

    Typically it’s when people are panic buying that markets fall.

  • karunesh says:

    >After a long time i m getting back in to trading wondering . how smooth is the entire system.. was using reliance money.. .. will get back to it and know some more.. about it..