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COMPANY UPDATE
Reliance Power (RPOL.BO)
Sell Equity Research
Rosa PLFs to improve, Samalkot on track, but no visibility on gas
What's changed
Reliance Power’s (RPWR) thermal power project Rosa-I operated at lower
PLFs of 27%-43% during June-Dec 2010 (as per CEA), which we think could
be attributed to: 1) shortage of domestic coal; 2) logistics issues for use of
imported coal; and 3) delays in construction of transmission lines. However,
according to recent media articles (Times of India, dated Jan 20, 2011), these
issues have been addressed and the plant is currently operating at full load.
Further, during our discussions management stated that the Samalkot project
is on track for commissioning by end-2011 on single phase and the PPAs
would likely be finalized in 1Q2011. Also, the management expects to meet
schedules for Rosa-II (3QFY12), Butiburi (3QFY12), Sasan (4QFY13) and
Krishnapatnam and Chitrangi in FY14.
Implications
We expect revenue recognition for Rosa-I to gain momentum from 4QFY11
as the plant is now operating on full load. While the progress on 2,400MW
Samalkot is encouraging, we believe the uncertainty on gas allocation will
be the key risk for project timelines and hampers RPWR’s ability to enter
into PPAs for this project. The government is yet to consider RPWR’s
request for gas allocation of 10mmscmd for this project from FY12. Based
on the underlying risk profiles of the projects, we continue to be
conservative on RPWR’s execution timelines. We expect Sasan, Chitrangi,
Tilaiya, and Krishnapatnam to come on-stream between FY14E-FY16E, and
Phase II of these projects to be commissioned only post FY16E.
Valuation
We reiterate Sell (on CL) on RPWR and finetune our 12-m SOTP-based TP to
Rs124 (earlier Rs125). We believe RPWR share price implies strong execution
of projects in the pipeline and does not reflect downside risks. We raise our
FY11E-FY13E EPS by 72%/1%/1% to reflect increased yield on cash in 1HFY11.
Key risks
Completion of projects ahead of estimated timelines.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Asia Pacific Conviction Sell List
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
COMPANY UPDATE
Reliance Power (RPOL.BO)
Sell Equity Research
Rosa PLFs to improve, Samalkot on track, but no visibility on gas
What's changed
Reliance Power’s (RPWR) thermal power project Rosa-I operated at lower
PLFs of 27%-43% during June-Dec 2010 (as per CEA), which we think could
be attributed to: 1) shortage of domestic coal; 2) logistics issues for use of
imported coal; and 3) delays in construction of transmission lines. However,
according to recent media articles (Times of India, dated Jan 20, 2011), these
issues have been addressed and the plant is currently operating at full load.
Further, during our discussions management stated that the Samalkot project
is on track for commissioning by end-2011 on single phase and the PPAs
would likely be finalized in 1Q2011. Also, the management expects to meet
schedules for Rosa-II (3QFY12), Butiburi (3QFY12), Sasan (4QFY13) and
Krishnapatnam and Chitrangi in FY14.
Implications
We expect revenue recognition for Rosa-I to gain momentum from 4QFY11
as the plant is now operating on full load. While the progress on 2,400MW
Samalkot is encouraging, we believe the uncertainty on gas allocation will
be the key risk for project timelines and hampers RPWR’s ability to enter
into PPAs for this project. The government is yet to consider RPWR’s
request for gas allocation of 10mmscmd for this project from FY12. Based
on the underlying risk profiles of the projects, we continue to be
conservative on RPWR’s execution timelines. We expect Sasan, Chitrangi,
Tilaiya, and Krishnapatnam to come on-stream between FY14E-FY16E, and
Phase II of these projects to be commissioned only post FY16E.
Valuation
We reiterate Sell (on CL) on RPWR and finetune our 12-m SOTP-based TP to
Rs124 (earlier Rs125). We believe RPWR share price implies strong execution
of projects in the pipeline and does not reflect downside risks. We raise our
FY11E-FY13E EPS by 72%/1%/1% to reflect increased yield on cash in 1HFY11.
Key risks
Completion of projects ahead of estimated timelines.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Asia Pacific Conviction Sell List
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