Stock to buy : The Anil Ambani group concern, Reliance Power, has surged over the last couple of weeks. The stock has now rallied for eight consecutive trading sessions, such is the power of the bull run on Dalal Street. A spate of key developments has been the prime catalyst for this major surge, among which are the announcement of a debt settlement as guarantor for Vidarbha Industries Power Limited (VIPL) and consideration by the company of long-term fundraising options.
Such positive sentiments have helped in lifting the Reliance Power stock out of the base-building phase, wherein the stock was consolidating. It catapulted it into a circuit-to-circuit stock since 18 September, 2024, when it gained about 50%. This article delves deep into the factors driving this surge, the company’s current financial situation, and what the future might hold for Reliance Power shares.
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Stock to buy Key Development Behind the Surge:
These announcements and actions in the company increased the shares of Reliance Power quite significantly. The first major trigger was seen in the company on September 17, 2024, when it declared that it had fully settled all its obligations as a guarantor for VIPL’s debt. The debt settlement involved clearing an outstanding amount of ₹3,872.04 crore along with the corporate guarantees and undertakings associated with VIPL’s debt.
This news was very important for two reasons:
It marked the fact that, slowly and steadily, Reliance Power started doing things right with its balance sheet, this time by dealing with the massive debt among all else.
It relieved several financial burdens straining the firm and lifting them restored investors’ confidence.
This debt settlement was done in negotiation with CFM Asset Reconstruction Private Limited, to whom the shares of VIPL were pledged. With this settlement done, the 100% pledged shares of VIPL have come in favor of CFM, thereby freeing up the corporate guarantees given by Reliance Power on behalf of VIPL.
Fundraising and Long-Term Growth Plans
The major reason behind this recent rise in stock is the fundraising announcement by the company. On Friday, September 27, 2024, Reliance Power informed the market that the Board of Directors would meet on October 03, 2024, to consider and approve a proposal for raising long-term capital. The company is deciding to raise funds through a number of measures, such as equity shares, or equity-linked securities and convertible warrants or through qualified institutional placement, or rights issue, or even foreign currency convertible bonds.
This fund raising exercise is meant to strengthen the financial muscle of the company and help it support its growth vision in the long term. Reliance Power is thereby getting prepared to raise capital from the domestic markets as well as from the international markets. The market has reacted positively to this move since it reveals that the company is growing in leaps and bounds and is ready to utilize all sources of funds.
More than that, investors reacted well to this piece of news, as raising long-term capitals would improve the liquidity of the company but would also allow it to execute future plans and expansion in the near future. The stock continues to rally due to investor optimism over the realization of these plans.
The technical analysis indicates a highly bullish trend
From a technical view, Reliance Power shares are showing strong bullish patterns. According to Sumeet Bagadia of Choice Broking, the stock is in long-term uptrend and trading around ₹46.35 per share. It is in line with previous highs, thereby giving enough signals that the stock has every potential for upside.
On the technical side, it points out that the stock has been pretty consistently making higher highs and higher lows-a gold standard for any long momentum, indeed. The stock price saw marked upsurge in its trading volumes while on this uptrend, which is again a sign that the rally has strength to its cause. That would mean so much upside potential for the stock from here, and in the near term, one would keep an eye on the ₹58-62/USD per share mark. This would be a possible 33% gain compared to its level.
He advises investors to go for buys on dips if they want to cash in on the uptrend momentum. In the case of the stock being on such an impeccable uptrend, the only reasonable and decent entry seems to be the immediate short-term corrections or pullbacks. Apart from that, he suggests that investors put a trailing stop-loss order at about the ₹40 mark to prevent profits from getting wiped out on the downsides. This would help in managing the risks and letting the investor take part in the rally that is happening.
Debt Restructuring by Reliance Power
Reliance Power has been trying to free itself from debt and thus make every effort to restructure its financial liabilities over the last few years. Most of the companies in the power sector, including Reliance Power, witnessed the major problems arising from debt piled up and inefficiencies in the operations. However, it is the settlement of debt on behalf of VIPL and the fact that the company is now focusing on becoming debt-free on standalone basis that have been turning points in its financial recovery.
Market gurus in recent times say that Reliance Power needs to shed off the burden of debt to survive in the long run. As per Avinash Gorakshkar, Head of Research at Profitmart Securities, Reliance Power has indeed remained on the Dalal Street bulls’ watch list since it began to make fairly decent inroads into the debt burden with some brawn. After the recent developments, despite the setbacks wherein the company faced a ban by SEBI on Anil Ambani from the securities markets, it is evident that Reliance Power is slowly but surely moving towards more stable financial positions.
Eased debt reduction along with fundraising plans along with positive investor sentiment have definitely set a favorable environment for shares of Reliance Power to perform well in near term.
Investor Sentiment and Recommendations
The current rally in the shares of Reliance Power has drawn immense attention among retail as well as institutional investors. For the investors who had entered the stock at lower levels, now could be a good opportunity to book some partial profit since the stock has moved sharply in the last couple of weeks. “Investors sitting on profits in this stock should consider taking money off the table at present levels, while maintaining a part of the investment for further upside,” advises Bagadia.
The current price level is attractive for any new investor, but it might be difficult to get in today since the stock has rallied significantly. Bagadia advises waiting for more dips or corrections before entering fresh positions, as that will be a more disciplined approach and an investor can have some view about the long-term growth of the stock while keeping control on the risk.
Risks and Problems
While the outlook for Reliance Power appears to be quite positive, one must note the potential risks and challenges. Going forward, the success of raising long-term capital through its announced fundraising exercise would form a crucial determinant of its future performance; otherwise, any delay or set back would then result in lower investor sentiment.
Further, even though Reliance Power has brought down its debt to a huge extent, it is yet to face challenges related to performance both on its operations and regulatory front. The Indian power sector is fairly competitive and Reliance Power would have to focus on efficiency and profitability so as not to dip into losses in the long run.
Further, the Anil Ambani’s ban on the securities market will not have immediate effects but may change investor sentiment with institutional investors paying attention to corporate governance matters.
Conclusion: A stock with good momentum but caution needed.
Concluding, Reliance Power shares have been strong on the upside propelled by efforts of trying to cut down on debt levels, positive outlook for fundraising, and bullish technical indicators. It could have more upsides from the current levels if the company delivers on its long-term capital-raising exercise and continues to improve financially.
However, one has to remain cautious as the stock has seen a significant rally lately. So for those already in, you would book partial profits and wait for possible dips for those who wish to enter. Like any investment, clear-cut risk management and a disciplined approach to navigate any opportunities and challenges that lie ahead of this particular player: Reliance Power.