Lot of STEAM left in power stocks?

Analysts said that the power sector is buzzing due to the Reliance Power IPO and also because Power Grid will be listing in a couple of days.

The whole power sector space is being impacted by what is happening with Reliance Power. The stock of Reliance Energy, on a sum of parts valuation, is highly sensitive to where Reliance Power is likely to come in.

If there is a 10-15% dilution, the overall valuation one puts to Reliance Power, is speculated between USD 400-667 billion. Analysts added that if one takes this big price band and put it in Reliance Energy’s sum of parts valuation, one gets between 1,730-2,304. Right now, Reliance Energy is way below this price. The stock has run up sharply over the past few days.

If one sees Reliance Energy’s run up, at the time of Power Grid opening, it was at Rs 862 and is now in the range of Rs 1,417. The valuation band, if we take Reliance Energy as the top power company, was at that time 22 times ‘08 earnings and is right now 36 times ‘08 earnings. So, all the other power companies are trying to catch up with it.

At that time, Tata Power was a 24 times earnings. With the run up in Reliance Energy, it has also moved up. It is at 35.8 times forward earnings. So, one is seeing the ruboff coming from these companies.

The thing to watch out for is NTPC, as it has been grossly undervalued, observed analysts. It is trading at 22.6 times. Analysts believe that there is likely to be a ruboff effect coming from Power Grid. It will be listing on Friday and analysts expect the listing to be above Rs 80 for Power Grid.
Source: Moneycontrol.com