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Reliance Power Underweight
RPOL.BO, RPWR IN
Some more years to go for meaningful growth; maintain UW
• Management shares optimism on project pipeline in an analyst
meeting; we believe medium-term estimates remain under pressure
and pipeline is vulnerable to delays. Company has concretized project
completion dates for Chitrangi (4GW, Nov-14), Sasan-2 (2GW, Apr-14
in line with Sasan-1) and Samalkot (2.4GW, Feb-12) following news of
fuel availability, equipment ordering and financing tie-ups. We however
see ongoing delay in Sasan UMPP plus operational hitches in smaller
projects like Rosa and Butibori as dampeners. We cut FY11 and 12
EBITDA estimates by 23% and 36% and remain below consensus
on operating profit.
• We expect the stock to continue to under perform the markets, as
valuations are rich (69x FY12 P/E and 18x FY13 P/E) and seem to
be pricing in strong medium term execution. Our slightly revised
Mar-12 PT of Rs.145 (previously Mar-11 PT of Rs145) factors in the
dilutive impact of the RNRL merger, neutralizing the positives of
factoring in Sasan-2 and rolling over the PT to Mar-12.
any, would need more conviction on coal production and debt funding
tie-up for Chitrangi: a game-changing project that can cause significant
accretion to FY15 and 16 numbers, as well as Rs.56 accretion to our
current SOTP.
• Pecking order within the Indian power sector: Lanco and Adani
Power, which will likely see more immediate project completion
catalysts vs RPWR, are our top picks. We have Neutral ratings on NTPC,
TPWR and JSW Energy.
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