UK-based 3i’s investment in Adani Power remains in the positive zone. Although the power generation firm has significantly brought down the value of its initial public offer(IPO)issue which in turn has shrunk the company’s valuation by two thirds, the expected issue price of Rs 70/share is still higher than the average cost of acquisition of shares for 3i.

The private equity fund had invested Rs 900 crore in Adani Power in two tranches-- October 2007 and April 2008. The PE firm subscribed to 8.4 crore shares as a result of these two transactions which now stands at 15.14 crore shares due to a 4:5 bonus issue at Adani Power last year. 3i holds 8.22% stake in Adani Power before the IPO which would become 6.92% post issue.


The average cost of acquisition for 3i is pegged at Rs 59.5/share. Adani Power seeks to raise Rs 2,193 crore through the issue which would translate into per share price of around Rs 65-70 given that the issue comprises 33.05 crore shares including 80 lakh shares reserved for the employees. Though 3i would be sitting on profit at this valuation, looking at the opportunity cost of the fund(had it been invested in some debt instrument) it could have earned a higher return.


In the meantime, one of the promoter group entities Ventura Power has picked up 3.85% stake(3.25% of post IPO capital) for around Rs 500 crore. Ventura Power is promoted by Vinod Shah one of the family members of the promoters. Post IPO promoter group stake will come down from 86.97% to 73.5%. Ventura picked stake in late March at a price of Rs 70 per share which is expected to be the IPO price unless it gets delayed further.


The company is still seeking to complete a pre IPO deal with outside investors which could well decide the final valuation of the firm. As of now at Rs 70 per share at issue the company would be valued at Rs 15,260 crore. As against this its earlier issue would have valued the firm at around Rs 39,000 crore. A sharp climb down.



The revised valuation puts Adani Power at par with Neyveli Lignite as the fourth most value power generation firm in the country behind NTPC, Reliance Power and Tata Power in that order. Power Grid, which is otherwise the second most valued power firm in the country is not into generation, it is engaged in transmission

At last year’s issue price Adani Power would have valued itself as the second largest power generation firm in the country. Apparently like many other firms Adani had tried to pull out resources given the positive vibes of Reliance Power IPO which crumbled on day 1 of listing. The market crash post September would have meant the high valuation would be a thing of fancy, so the revised pricing looks much more reasonable than last year.


As of December 31, 2008 the firm had net worth of Rs 1,954.4 crore which would give a book value of Rs 89/share on the expanded capital base(post issue). Since the firm is still in project implementation stage it doesn’t have any revenues as of now. For the first nine months of 2008-09 Adani Power had net loss of Rs 24 crore and accumulated losses of Rs 95.8 crore.


Earlier, Adanis were in talks with a consortium of investors led by 3i India Infrastructure Fund to sell around 4-4.5% stake in Adani Power for $ 400 million (Rs 1,800 crore at that time). This deal would have valued the firm at $10 billion. But this deal didn’t fructify.


The fund raising is for setting up power generation projects with a capacity of 9,900 MW spread across the states of Gujarat, Maharashtra and Rajasthan. The first unit is expected to be commissioned in Mundra in 2009. In all, the power projects are estimated to require investments worth Rs 43,139 crore. This is to be funded through a debt equity ratio of 80:20.

 The IPO issue proceeds are to used for two specific projects -- 1980 MW project at Mundra and another project of same capacity at Tiroda in Maharashtra.


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