Reliance Power Ltd shares saw a sharp decline of 4.33% on Monday, falling to a low of ₹44.35 on the BSE, just days before a critical board meeting scheduled for Thursday, October 3.
The Anil Ambani-led company has been in the spotlight recently due to its rapid stock rally, but the latest drop comes as investors await decisions regarding the company’s fundraising plans.
The upcoming board meeting will likely address the company’s strategy for raising long-term capital, which could have a lasting impact on its stock performance and overall financial stability.
Board Meeting to Focus on Long-Term Fundraising
Reliance Power has called a board meeting on October 3 to consider and approve plans to raise long-term resources, possibly through the issuance of equity shares, equity-linked securities, or convertible warrants.
The company has kept its fundraising options open, considering multiple routes, including a preferential issue or a QIP. The board will also deliberate on other methods like a rights issue, foreign currency convertible bonds (FCCBs), or any other financial instruments that may be deemed appropriate.
This meeting could mark a pivotal moment for Reliance Power as it seeks to strengthen its financial position by tapping into domestic and global markets for capital. The company aims to fund expansion projects, particularly in the renewable energy sector, which has been a key area of focus in its strategic roadmap.
Stock Rally and Market Reaction
The decline in Reliance Power’s stock on Monday comes after an impressive rally in recent weeks. Over the last 11 trading sessions, Reliance Power shares surged by over 44%, driven by positive investor sentiment around its ongoing transformation efforts.
During this period, the stock also rallied by as much as 49%, marking a significant recovery for the company, which had been navigating financial challenges for several years.
Monday’s dip reflects the market’s caution ahead of the board meeting, as investors are likely reassessing the stock’s near-term prospects in light of the planned fundraising. Given the surge in the past two weeks, some profit-booking may have also contributed to the selloff as investors locked in gains ahead of potentially market-moving announcements later this week.
Focus on Renewable Energy Expansion
One of the key drivers behind Reliance Power’s recent performance has been its focus on expanding into renewable energy. The company has laid out plans to use a substantial portion of the proceeds from any fundraising activity to bolster its presence in this growing sector.
Specifically, the company intends to allocate ₹803.60 crore towards expanding its renewable energy portfolio and pursuing other new business opportunities.
This renewed focus on clean energy is part of a broader trend within the Ambani business empire, which has increasingly emphasized green energy initiatives. Reliance Power’s pivot towards renewables aligns with global trends, where many energy companies are transitioning to more sustainable business models.
In August, Reliance Power completed a preferential issue, raising ₹1,524.60 crore by allotting 46.20 crore equity shares. The shares were issued to its promoter, Reliance Infrastructure Ltd, as well as two non-promoter entities—Authum Investment and Infrastructure Ltd and Sanatan Financial Advisory Services Private Ltd.
This fundraising move, aimed at expanding the renewable energy portfolio, signals that Reliance Power is doubling down on its commitment to the clean energy sector.
Debt Reduction and Financial Health
In another significant development, Reliance Power recently revealed that it has cleared all outstanding debt with banks and financial institutions, placing the company in a stronger financial position.
As of June 30, 2024, the company reported a consolidated net worth of ₹11,155 crore. This improvement in financial health follows the resolution of disputes with CFM Asset Reconstruction Private Limited (CFM), which resulted in the company pledging 100% of the shares of its subsidiary, Vidarbha Industries Power Ltd (VIPL). In exchange, Reliance Power secured the release and discharge of a corporate guarantee it had previously provided.
This debt-free status is a major turnaround for the company, which had been grappling with financial issues for years. The settlement with CFM and the elimination of bank debt have bolstered investor confidence, as reflected in the stock’s recent rally.
What Lies Ahead for Reliance Power?
The upcoming board meeting is expected to provide greater clarity on the company’s fundraising strategy and its plans for future growth. While the stock market reacted cautiously on Monday, the overall sentiment around Reliance Power remains optimistic, especially given the company’s renewed focus on renewable energy and its improved financial standing.
Investors will be keenly watching for any announcements regarding the pricing of the proposed equity shares, as well as the specific financial instruments the company plans to use. Whether through a QIP, preferential issue, or FCCBs, the method of fundraising will play a crucial role in determining the company’s stock trajectory in the near term.
The company’s ability to effectively deploy the funds into high-growth areas like renewable energy will be critical to maintaining its momentum. The market will be looking for signs that Reliance Power can successfully execute its expansion plans and capitalize on emerging opportunities in the energy sector.
