Reliance Power: a hill to climb :: Daiwa

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Reliance Power: Initiation of coverage: a hill to climb
Large project pipeline, execution is the key
􀂃 RPWR plans to set up more than 30GW of greenfield power
projects, but with no capacity additions due until FY12 we see
no near-term catalysts for the stock. Most of the capacityaddition
pipeline is at an early stage and so the execution risks
are likely considerable.
Uncertainty over the supply of gas for its projects
􀂃 We expect the company’s gas-based projects to face two
hurdles. First, its requirement for 35mmscmd (8.4GW pipeline)
amounts to 50% of India’s total incremental domestic gas
production of 71mmscmd (FY11-15), based on our energy
team’s forecasts. Securing such a large proportion of an already
tight resource may not be possible.
􀂃 Second, according to the recent guidelines on gas allocation
under the 12th Plan projects, preference is given to central
government and state-government utilities over the IPPs. NTPC
alone has brownfield expansion plans of more than 6GW if gas
is made available.
5 (Sell) rating and target price of Rs130
􀂃 We initiate coverage of RPWR with a 5 (Sell) rating and DCFbased
six-month target price of Rs130. We believe the key
upside risks to our rating and target price are clarity on the
availability gas and funding being confirmed for the Chitrangi
plant (4GW, based on surplus coal from the Sasan project).