Adani Power shares make disappointing debut

File photo of electric pylons in Ahmedabad, February 21, 2006. Shares in Adani Power bounced around the issue price of 100 rupees after a shaky opening for India's first large IPO in 18 months, a performance that may prompt other listing hopefuls to lower their valuation expectations.

MUMBAI (Reuters) - Shares in Adani Power, which raised $630 million in India's first large IPO in 18 months, made a shaky market debut on Thursday that could prompt other listing hopefuls to scale down their price expectations.

State-owned energy explorer Oil India is planning a $500 million to $600 million IPO in September and a clutch of companies including at least a dozen government firms are eyeing share sales to fund expansion in Asia's third-largest economy.

Shares in Adani Power closed up 0.05 percent at 100.05 rupees on the Bombay Stock Exchange after opening 5.15 percent higher and then falling as low as 98.50 rupees. The benchmark BSE index climbed 1.4 percent.

The stock was the most actively traded, notching a volume of 96.4 million shares.

The listing was almost reminiscent of the stock market debut by Reliance Power, which raised almost $2.9 billion in India's largest-ever IPO in early 2008 but has not closed above the issue price.

Analysts had expected Adani to open 6-10 percent higher but slip below the issue price on project execution risk. The firm, which is building power plants with a combined capacity of 6,600 megawatts generates only 330 megawatts now.

Angel Broking analyst Girish Solanki estimates the fair value for the stock at 82 rupees, citing risks in developing new capacities. Large investors might exit the stock if pricing of IPOs by rivals such as Indiabulls Power is attractive.

"Markets are comparatively weaker than when the issue opened for subscription. So I am not surprised given the project execution risks," said Ambareesh Baliga, vice-president at Karvy Stock Broking.

The tepid listing could dent investor appetite for high-priced offering and companies will have to scale down their pricing to keep the market going.

"Investors apply for IPO listing gains. It would augur well for IPOs to leave more on the table for investors," Baliga said.

At 100 rupees a share Adani would be valued at 4 times book, compared with 3.1 times for state-run utility NTPC Ltd that generates 31,000 megawatts or a quarter of the country's power.

BRAVE FACE

"The market will find its own price," said Adani Power Chairman Gautam Adani in response to a question on the tepid listing.

"I think the company's performance in the coming quarters with turbines getting added along with the capacity building up ... will be able to see the market take care of the pricing," he said.

The company expects revenue to start accruing from the December quarter, officials said.

Adani Power last month sold 13.84 percent of the company or 301.65 million shares in an offering that was subscribed more than 20 times, with large funds bidding heavily.

The company, which initially planned the IPO last year but deferred it amid the global financial crisis, plans to spend 21.9 billion rupees ($450 million) from the IPO proceeds for building the power plants.

DSP Merrill Lynch, Enam Securities, IDFC-SSKI, JM Financial, Kotak Mahindra Capital Co, Morgan Stanley, ICICI Securities and SBI Capital Markets were the arrangers to the issue.

Indian firms have raised almost $10 billion by selling shares so far this year, surpassing the money raised in 2008, helped by an 86.5 percent surge in the BSE index from its March low. However, at Thursday's close the benchmark had fallen 4.2 percent in August.

State utility NHPC Ltd, which raised $1.25 billion earlier this month in an IPO that was subscribed nearly 24 times, is expected to list in early September.