Event- GE dispatches turbines in advance for Reliance Power’s Samalkot project: Emkay

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Event- GE dispatches turbines in advance for Reliance Power’s Samalkot project

General Electronics (GE) has dispatched the first batch of gas turbines for Reliance Power's (RPL)2,400 MW Samalkot power project. This dispatch has been made ahead of schedule (scheduled delivery was in May 2011).

Impact:

Early dispatch of the turbines increases our confidence of timely commissioning of capacities by the company. We expect 2400MW Samalkot plant to be operational in FY13E

GE- RPL deal

RPL had placed the main plant equipment order (order size Rs10,000cr) for Samalkot power plant (2,400MW) with GE in October 2010. The order was for six gas turbines, three steam turbines and generators. GE is responsible for maintenance of the power project throughout its operating life, along with guaranteed availability, output and efficiency.

Outlook & Valuations

Early dispatch of turbines by GE increases our confidence that RPL would be successfully be able to commission its capacities as per schedule commissioning dates. Also, RPL with one of the highest pit head and relatively high quality coal reserves (2bn MT), is likely to be one of the most sustainable private utility business model (fuel cost per unit of less than Rs0.45/unit for 14000MW at least). The recent competitive bid win from UPPCL (2470MW at Rs3.7/unit) strengthens its position.

Also, with the domestic coal shortage, international coal prices inching higher and utilities scouting for coal supplies, RPL might emerge as a coal play. At CMP of Rs131/Share, RPL is trading at 1.8xFY13E Book value with long term ROE of 18%+. The current valuations imply (1) Rs2.8/unit Levellized tariffs (relatively lower) for the open capacity (mainly for Chitrangi and Sasan II), (2) EVM of Rs30mn/MW, 8% discount to average universe.

Given (1) most sustainable business model, (2) higher margin of safety, we relatively prefer RPL along with Lanco in our private utility coverage. We maintain Accumulate with price target of Rs157/Share.